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CFA Level I: free practice test

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Practice test questions with answers and explanations

Try the questions in the test above first, then open each one here to see the correct answer and why every other option is wrong.

01A wealth manager follows local law but hides an important limitation in her service. Which assessment is most accurate?

Practice question Unit: Ethical and Professional Standards

  1. AConduct is ethical whenever no law prohibits it.

    Law and ethical responsibilities do not always coincide.

  2. BLegal compliance alone does not establish ethical conduct. ✓ Correct answer

    Professional duties can require more than legal minimums.

  3. COnly the eventual investment return determines ethics.

    A profitable outcome does not justify concealment.

Reference: CFA Institute, Standards of Practice Handbook, 12th ed. (2024), Ethics and the Investment Industry, pp. xiii–xvii. https://www.cfainstitute.org/-/media/documents/code/code-ethics-standards/standards-practice-handbook-12th-edition.pdf

02An investor buys a share for 80, receives a dividend of 3, and sells for 85. With no fees, the holding-period return is:

Practice question Unit: Quantitative Methods

  1. A6.25%

    This omits the dividend.

  2. B9.41%

    Dividing by the sale price uses the wrong investment base.

  3. C10.00% ✓ Correct answer

    Total gain is 85−80+3=8, divided by initial 80.

Reference: https://www.cfainstitute.org/insights/professional-learning/refresher-readings/2026/rates-and-returns — Introduction and available Summary. Source checked 2026-11-03; CFA refresher pages are version 2026, mapped to 2027 LOS.

03At its best operating output, a price-taking producer receives $18 per unit. Average variable cost is $14 and average total cost is $21. All fixed costs are unavoidable this month. The best short-run decision is to:

Practice question Unit: Economics

  1. Aexpand until price equals average total cost

    Output is optimized using marginal revenue and marginal cost, not a target equality with average cost.

  2. Bshut down because accounting profit is negative

    A loss alone does not justify shutdown when revenue exceeds variable cost.

  3. Ccontinue operating to cover part of fixed cost ✓ Correct answer

    Each unit contributes $4 toward unavoidable fixed cost; shutdown removes that contribution.

Reference: Official public reading, Introduction and explanatory summary: https://www.cfainstitute.org/insights/professional-learning/refresher-readings/2026/firm-market-structures

04Before collecting data for a loan renewal, the analyst should first:

Practice question Unit: Financial Statement Analysis

  1. ADefine the credit decision and information needed ✓ Correct answer

    Purpose determines relevant data and methods.

  2. BIssue a provisional recommendation

    A recommendation requires analysis of evidence first.

  3. CCalculate every available ratio

    Ratios follow purpose and collection; indiscriminate calculation wastes effort.

Reference: https://www.cfainstitute.org/insights/professional-learning/refresher-readings/2026/financial-analysis-techniques — Summary: analysis framework. Public reference; 2027 LOS alignment, not a 2027 textbook page.

05A shareholder owns fully paid shares in a limited company. The company fails with debts exceeding its assets. Assuming no personal guarantee or misconduct, the shareholder generally risks:

Practice question Unit: Corporate Finance

  1. Aonly the most recent dividend received.

    The capital at risk is the equity investment, not merely a recent dividend.

  2. Bthe amount invested in the shares. ✓ Correct answer

    The investment may be lost, but the shareholder has no further ordinary liability under the assumptions.

  3. Cthe shareholder’s proportionate share of unpaid company debts.

    Proportionate ownership does not make fully paid shareholders personally responsible for corporate debts.

Reference: CFA Institute, 2026 refresher reading, organizational-forms-corporate-issuer-features-and-ownership, Overview/Introduction; stable concepts mapped to 2027 Corporate Finance LOS. https://www.cfainstitute.org/insights/professional-learning/refresher-readings/2026/organizational-forms-corporate-issuer-features-and-ownership

06A company is liquidated after satisfying all creditors and preferred claims. Which security normally receives the remaining assets?

Practice question Unit: Equities

  1. ACommon shares ✓ Correct answer

    Common shareholders hold the residual ownership claim.

  2. BSenior bonds

    Senior debt is settled before residual equity, not from its residual entitlement.

  3. CNon-participating preferred shares only

    A non-participating preferred claim does not generally absorb the remaining upside.

Reference: Overview of Equity Securities, Summary. 2026 public refresher; stable concept mapped to 2027 Equities LOS. https://www.cfainstitute.org/insights/professional-learning/refresher-readings/2026/overview-equity-securities

07A bond contract limits additional secured borrowing. This is best classified as:

Practice question Unit: Fixed Income

  1. AA negative covenant ✓ Correct answer

    It restricts an issuer action.

  2. BA sinking-fund payment

    No principal repayment schedule is described.

  3. CAn affirmative covenant

    An affirmative covenant requires an action rather than prohibiting it.

Reference: CFA Institute 2026 public Refresher Reading, Overview / Learning outcomes (stable concepts mapped to 2027 LOS): https://www.cfainstitute.org/insights/professional-learning/refresher-readings/2026/fixed-income-instrument-features; CFA Research Foundation, Foundations of High-Yield Analysis (2018), Chapter 5, printed p.32: covenant categories. https://www.cfainstitute.org/sites/default/files/-/media/documents/article/rf-brief/rfbr-v4-n5-1.pdf

08A call on one share has an exercise price of USD 48. The share trades at USD 57. Its exercise value per share is:

Practice question Unit: Derivatives and Risk Management

  1. AUSD 0

    Zero applies when the share price is at or below the strike.

  2. BUSD 9 ✓ Correct answer

    Buying for 48 an asset worth 57 gives 57 − 48 = 9.

  3. CUSD 48

    The strike is the payment for the share, not the exercise value.

Reference: CFA Institute, 2026 Refresher Reading, Pricing and Valuation of Options, Introduction: exercise value. https://www.cfainstitute.org/insights/professional-learning/refresher-readings/2026/pricing-valuation-options | 2027 Level I Topic Outlines, printed p. 24, Pricing and Valuation of Options. https://www.cfainstitute.org/sites/default/files/2027levelitopicoutline_online.pdf

09A pension plan has no staff to select or operate private businesses. It accepts a higher fee to delegate both tasks. Which access method best matches its resources?

Practice question Unit: Alternative Investments

  1. ACo-investment alongside a sponsor

    Co-investing still requires evaluating a specific transaction and monitoring that exposure.

  2. BFund investment ✓ Correct answer

    A fund delegates asset selection and management to a specialist manager.

  3. CDirect investment

    Direct ownership requires the plan to develop selection and oversight capabilities.

Reference: Alternative Investment Features, Methods, and Structures, 2026 public Refresher Reading, Overview/Introduction and key points. https://www.cfainstitute.org/insights/professional-learning/refresher-readings/2026/alternative-investment-features-methods-and-structures | Aligned to 2027 Level I Alternative Investments LOS, printed pp. 25–26. https://www.cfainstitute.org/sites/default/files/2027levelitopicoutline_online.pdf

10A committee proposes buying a volatile asset because its returns tend to rise when the existing portfolio falls. The most relevant reason to consider it is its:

Practice question Unit: Portfolio Construction

  1. Aguaranteed positive return

    Correlation provides no return guarantee.

  2. Bcontribution to overall portfolio risk ✓ Correct answer

    Low or negative correlation can offset existing exposures.

  3. Chigh standalone volatility

    Standalone volatility ignores interaction with existing holdings.

Reference: CFA Institute, 2026 public Refresher Reading: portfolio-risk-return-part-1, Summary / low correlation and diversification. Stable principles aligned to 2027 LOS. https://www.cfainstitute.org/insights/professional-learning/refresher-readings/2026/portfolio-risk-return-part-1

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See also: Finance & Insurance Exams