Practice questions
CFA Level I (CFA Institute): Practice Questions
A dozen original concept-check questions on core CFA Level I ideas. Choose an answer to reveal the explanation.
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All else equal, receiving $1,000 today is worth more than receiving $1,000 in a year because of:
Correct answer: B. Money available now can be invested to earn a return, so present money has greater value than the same amount later. -
Diversifying a portfolio across many uncorrelated assets primarily reduces:
Correct answer: B. Diversification reduces unsystematic, asset-specific risk. Systematic market risk cannot be diversified away. -
In the CFA Program, the Code of Ethics and Standards of Professional Conduct are:
Correct answer: C. Ethics is heavily weighted at every level and can decide a borderline result, so it should be studied deeply. -
A project with a positive net present value (NPV) is expected to:
Correct answer: B. A positive NPV means the present value of expected cash flows exceeds the cost, so the project adds value. -
All else equal, when market interest rates rise, the price of an existing fixed-rate bond:
Correct answer: B. Bond prices move inversely to interest rates: when rates rise, existing bonds with lower coupons become less valuable. -
The discount rate used to value a project's cash flows should mainly reflect:
Correct answer: B. The discount rate reflects the opportunity cost of capital given the investment's risk; riskier cash flows are discounted more heavily. -
A bond's yield to maturity (YTM) is:
Correct answer: B. YTM is the internal rate of return of holding the bond to maturity, reflecting price, coupons and time remaining. -
In portfolio theory, 'beta' measures:
Correct answer: B. Beta measures systematic (market) risk — how much an asset's return moves relative to the market. -
Which financial statement shows a company's position at a single point in time?
Correct answer: C. The balance sheet is a snapshot of assets, liabilities and equity at a point in time; the others cover a period. -
Under accrual accounting, revenue is recognised when it is:
Correct answer: B. Accrual accounting recognises revenue when earned and expenses when incurred, not when cash changes hands. -
Higher liquidity of an asset generally means:
Correct answer: B. Liquidity is how easily an asset can be sold near its fair value quickly; less-liquid assets often demand a premium. -
Market efficiency, in the CFA curriculum, concerns how far prices:
Correct answer: B. Market efficiency is about how fully and quickly asset prices reflect available information.