Free CFA Level 1 practice questions with answers
Work through ten standalone questions, one for each Level I topic area. Choose an answer before opening the explanation. The sample is deliberately small and does not reproduce official topic weights.
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2026 curriculum scope. Ten standalone three-choice examples, not a mock exam or a readiness score. Check your registered exam-window outline before using any study resource.
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- Question 1 of 10Ethical and Professional StandardsMultiple choice
An issuer invites an analyst to a luxury resort for a plant tour and offers to pay all travel and lodging costs. The analyst can inspect the plant using ordinary commercial travel. Which action is most appropriate?
Answer and explanations
The analyst should protect independence and objectivity when a reasonable alternative exists. Paying ordinary travel costs avoids a benefit that could influence, or appear to influence, the resulting research opinion.
Review the tested method- A: Access offered to others does not remove the potential conflict.
- B - correct: Ordinary firm-paid travel protects independence.
- C: Accepting luxury lodging still creates the benefit.
- Question 2 of 10Quantitative MethodsMultiple choice
An investor buys a share for $40, receives a $1 dividend, and sells the share for $42. The holding-period return is closest to:
Answer and explanations
The total gain is the $2 price increase plus the $1 dividend, or $3. Dividing $3 by the $40 initial price gives a holding-period return of 7.5%.
Review the tested method- A: 5% includes only the price gain and omits the dividend.
- B - correct: The $3 total gain divided by $40 is 7.5%.
- C: 10% overstates the $3 gain on a $40 investment.
- Question 3 of 10EconomicsMultiple choice
A binding price ceiling is set below the competitive equilibrium price. The most likely immediate market outcome is:
Answer and explanations
The lower controlled price raises quantity demanded and reduces quantity supplied relative to equilibrium. The gap between the two quantities is a shortage.
Review the tested method- A - correct: At the lower binding price, demand exceeds supply.
- B: A surplus would reverse the quantities in the stem.
- C: A binding ceiling prevents trade at the original equilibrium price.
- Question 4 of 10Corporate FinanceMultiple choice
A company identifies an independent project with a positive net present value. Accepting the project is most likely to:
Answer and explanations
A positive NPV means the present value of expected cash inflows exceeds the required investment at the appropriate discount rate. Accepting the project should add that positive amount to firm value.
Review the tested method- A - correct: Positive NPV adds value at the stated required return.
- B: Zero NPV, not positive NPV, would imply no incremental value.
- C: Negative NPV would reduce value.
- Question 5 of 10Financial Statement AnalysisMultiple choice
A company has current assets of $200 and current liabilities of $100. It uses $20 of cash to pay accounts payable. The current ratio after payment is:
Answer and explanations
After payment, current assets are $180 and current liabilities are $80. The new current ratio is $180 divided by $80, or 2.25, higher than the original 2.00.
Review the tested method- A: 1.80 reduces assets but incorrectly leaves liabilities at $100.
- B: 2.00 is the ratio before the payment.
- C - correct: Both sides fall by $20: $180 / $80 = 2.25.
- Question 6 of 10EquitiesMultiple choice
A stock is expected to pay a $3 dividend next year. If the required return is 9% and dividends are expected to grow at 4% indefinitely, the stock value is closest to:
Answer and explanations
The constant-growth dividend model divides next year's dividend by the required return minus the growth rate. Dividing $3 by 5% produces an estimated value of $60.
Review the tested method- A: Dividing by 9% omits the positive growth assumption.
- B - correct: $3 / (9% - 4%) = $60.
- C: Dividing by growth alone is not the dividend valuation model.
- Question 7 of 10Fixed IncomeMultiple choice
For an option-free fixed-rate bond, an increase in the required yield will most likely cause the bond's price to:
Answer and explanations
A bond price is the present value of its promised cash flows. Raising the discount rate reduces that present value, producing the inverse relationship between price and yield.
Review the tested method- A - correct: A higher discount rate lowers the value of fixed cash flows.
- B: Fixed coupons do not imply a fixed market price.
- C: An increase in price would require a lower yield, other things equal.
- Question 8 of 10Derivatives and Risk ManagementMultiple choice
A long forward contract has a delivery price of $100. If the underlying asset is worth $110 at expiration, the payoff to the long position is:
Answer and explanations
The long forward payoff at expiration is the spot price minus the delivery price. The holder can receive an asset worth $110 for $100, creating a $10 payoff.
Review the tested method- A: -$10 is the payoff to the short, not the long.
- B: Zero would require spot to equal the $100 delivery price.
- C - correct: The long receives $110 of value for a $100 payment.
- Question 9 of 10Alternative InvestmentsMultiple choice
The early negative returns commonly shown by a private equity fund's J-curve are most closely associated with:
Answer and explanations
Private equity funds incur fees and deploy capital before portfolio improvements and exits can produce gains. Early net returns may therefore be negative before later realizations lift the cumulative result.
Review the tested method- A - correct: Costs precede realized exits, causing early negative net returns.
- B: Daily exchange pricing is not the defining J-curve mechanism.
- C: Distributions are neither guaranteed nor normally immediate.
- Question 10 of 10Portfolio ConstructionMultiple choice
A portfolio invests 60% in an asset expected to return 8% and 40% in an asset expected to return 2%. The portfolio's expected return is:
Answer and explanations
Portfolio expected return is the weighted average of component expected returns. The calculation is 0.60 times 8% plus 0.40 times 2%, which equals 5.6%.
Review the tested method- A: 4.4% reverses the two portfolio weights.
- B - correct: 0.6 x 8% + 0.4 x 2% = 5.6%.
- C: 6% is not the weighted average of the supplied returns.
Turn each miss into a different problem
Use the method link in each explanation to revisit the exact calculation or decision. Write down the first step that failed, then change an input or condition. A remembered answer letter does not show that you can apply the method.
Price ceiling: compare the quantities at the controlled price
In the sample, the ceiling is below equilibrium and is binding. Buyers want more than sellers offer, so the gap is a shortage. Do not swap quantity demanded with quantity supplied.
Change the fact: put the ceiling above equilibrium. If the market can still trade at its equilibrium price, the ceiling is not binding and does not itself create that shortage. This is a foundational model; real markets require additional assumptions.
Private equity: distinguish timing from a guarantee
Fees and early investment costs can precede later realizations, producing initially negative net returns. The J-curve describes a possible pattern, not a promise that every fund eventually makes money.
Change the fact: if portfolio investments are sold at a loss, later exits may not reverse the early losses. Look at cash-flow timing and realized outcomes rather than assuming the curve must turn upward.
Choose your next practice step
This is the same ten-question set used on the Level I guide, not an additional bank. It contains selected foundational examples and does not reproduce the full curriculum, topic weights or exam difficulty. Check the official outline for your registered year.
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