Practice questions

CFA Level III (CFA Institute): Practice Questions

By The Exam Atlas Editorial Team · Verified 2026-05-31

30 questions · 5 domains · ~38 min · Updated 2026-05-31

Original concept-check questions for CFA Level III, reflecting its portfolio-management focus and essay (constructed-response) format. Each answer is explained, including why the others are wrong. Filter by domain or difficulty. These are concept checks — not real exam questions.

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1. Exam format easy

   The CFA Level III exam format combines:

   A Only standalone multiple-choice B Essay (constructed-response) questions and item sets C An oral defense D A thesis submission

2. Portfolio Management easy

   The core focus of CFA Level III is:

   A Portfolio management and wealth planning B Basic bookkeeping C Audit procedures D Tax return preparation

3. Pathways medium

   From 2025, Level III candidates choose a specialized pathway. Which is one of them?

   A Private Wealth B Forensic Audit C Tax Litigation D Actuarial Science

4. Portfolio Management medium

   An Investment Policy Statement (IPS) primarily documents a client's:

   A Objectives and constraints (return, risk, liquidity, time horizon, taxes, legal, unique) B Daily trades C Audit findings D Marketing plan

5. Portfolio Management medium

   Strategic asset allocation differs from tactical asset allocation in that strategic allocation is:

   A The long-term policy mix B A short-term bet on markets C A single stock pick D A tax form

6. Portfolio Management medium

   Rebalancing a portfolio means:

   A Returning holdings to their target weights B Selling everything C Ignoring the allocation D Only buying new assets

7. Pathways medium

   To earn the CFA charter, a candidate must pass all three levels and also:

   A Complete the required qualified work experience B Buy a membership only C Take an oral exam D Publish research

8. Exam format medium

   A sound strategy for the Level III essay section is to:

   A Write structured, on-point answers under timed practice and self-grade B Write as much as possible regardless of the question C Skip the essays D Memorize sample answers verbatim

9. Portfolio Management medium

   Behavioral finance studies how:

   A Cognitive and emotional biases affect investor decisions B Bonds are priced only by coupons C Audits are conducted D Taxes are filed

10. Wealth Planning medium

    A client's risk tolerance is usually assessed as a combination of:

    A Ability and willingness to take risk B Only their age C Only their income D The market's volatility

11. Wealth Planning hard

    Liability-driven investing aims to:

    A Structure assets to meet specific future liabilities B Maximize short-term trading profit C Avoid all bonds D Ignore the time horizon

12. Ethics easy

    Ethics at Level III is:

    A Still weighted and applied to portfolio and advisory situations B Dropped after Level II C Optional D Replaced by a pathway

13. Portfolio Management medium

    The efficient frontier represents:

    A Portfolios offering the highest expected return for each level of risk B The riskiest possible portfolios C A single stock D Only the risk-free asset

14. Portfolio Management medium

    Adding an asset with low correlation to a portfolio tends to:

    A Improve the risk-adjusted return through diversification B Always raise total risk C Have no effect D Guarantee higher profit

15. Wealth Planning medium

    A key difference between a defined-benefit and a defined-contribution pension is:

    A Who bears the investment risk (employer in DB, employee in DC) B Only the tax rate C The currency used D There is no difference

16. Wealth Planning medium

    For a taxable investor, 'tax-loss harvesting' aims to:

    A Realize losses to offset gains and reduce taxes B Avoid investing altogether C Increase trading just for activity D Hide income illegally

17. Wealth Planning medium

    A client with a short time horizon and a high need for stable cash flow generally has:

    A Low risk tolerance and capacity B Very high risk capacity C No constraints D An unlimited horizon

18. Portfolio Management hard

    Rebalancing a portfolio back to target weights is effectively a:

    A 'Buy-low, sell-high' contrarian discipline B Momentum-chasing strategy C Form of market timing D Way of doing nothing

19. Portfolio Management medium

    'Loss aversion' describes investors who:

    A Feel losses more strongly than equivalent gains B Enjoy taking losses C Ignore losses completely D Never sell anything

20. Portfolio Management medium

    'Anchoring' bias occurs when investors:

    A Rely too heavily on an initial reference point B Diversify optimally C Rebalance frequently D Avoid all bias

21. Portfolio Management medium

    A goals-based (or liability-relative) approach to allocation focuses on:

    A Meeting specific future obligations or goals rather than only maximizing return B Beating peers at any cost C Frequent day trading D Ignoring risk

22. Wealth Planning medium

    An endowment's spending rule typically aims to:

    A Balance current spending with preserving real value for the future B Spend the entire fund now C Never spend anything D Maximize portfolio turnover

23. Portfolio Management medium

    Currency risk in an international portfolio can be:

    A Reduced by hedging with forwards or futures B Never managed C Always safely ignored D Removed simply by buying more stocks

24. Portfolio Management hard

    A bond-portfolio immunization strategy aims to:

    A Match duration to the liability horizon so the portfolio is shielded from rate moves B Maximize turnover C Pick individual stocks D Ignore duration

25. Wealth Planning medium

    Human capital (the present value of future earnings) usually:

    A Declines as a person ages, which shifts the appropriate asset mix B Rises forever C Is irrelevant to planning D Always equals net worth

26. Portfolio Management medium

    Tactical asset allocation involves:

    A Short-term deviations from the strategic mix to exploit perceived opportunities B Never changing the allocation C Holding a single asset D Ignoring markets entirely

27. Portfolio Management medium

    A 'risk budget' is used to:

    A Allocate the portfolio's tolerable risk across positions or strategies B Set the management fee C Choose the custodian D File the client's taxes

28. Pathways medium

    Regardless of the Level III pathway chosen, all candidates are still tested on:

    A Portfolio management and ethics, the common core B Only their chosen pathway C Nothing in common D Derivatives alone

29. Wealth Planning medium

    Estate planning for a wealthy client primarily addresses:

    A The efficient transfer of wealth to heirs and charities B Day trading strategies C Picking individual stocks D Evading taxes

30. Ethics medium

    Under the CFA Institute Asset Manager Code, managers should:

    A Act for the benefit of clients and place client interests first B Favor the firm over clients C Trade on rumors D Avoid disclosing fees

Practice questions FAQ

Are these real CFA Level III exam questions?

No. These are original study questions written to test understanding. They are not real exam questions, exam dumps, or copied from any provider.

How should I use these practice questions?

Answer each one, read the explanation (including why the wrong options are wrong), and use the per-domain score below to focus your revision on weak areas. Revisit before exam day.

How many questions should I do before the exam?

Enough to score consistently across every domain, alongside full-length practice from official or reputable providers. Understanding why each answer is right matters more than raw volume.

What score means I am ready?

A good signal is consistently scoring around 80% or higher across all domains on questions you have not seen before, and being able to explain why the wrong options are wrong.

Should I use exam dumps?

No. Dumps (real or leaked questions) breach provider policy, can void your certification, and do not build the understanding the exam actually tests.

Sources

• CFA Institute — CFA Program ↗