Practice Exam Level I Questions And

Chartered Financial Analyst (CFA) Practice Exam Level I Questions And Correct Answers (Verified Answers) Plus Rationales 2026 Q&A | Instant Download Pdf

• Which of the following best describes the primary objective of the CFA

Institute Code of Ethics?

• To ensure compliance with securities regulations
• To promote ethical decision-making and integrity in investment

professions

• To maintain and improve the integrity of global capital markets
• To eliminate conflicts of interest

Rationale: The Code of Ethics emphasizes maintaining integrity and

transparency in capital markets globally, not merely compliance or conflict elimination. 1 / 4

• An analyst receives nonpublic information that a company will beat

earnings expectations. What should the analyst do?

• Recommend buying the stock immediately
• Inform clients under confidentiality
• Do nothing until the information is public
• Short the competitor’s stock

Rationale: Using or acting on material nonpublic information violates the

CFA Standards of Professional Conduct.

• Which measure best captures a portfolio’s risk-adjusted return?
• Jensen’s Alpha
• Treynor Ratio
• Sharpe Ratio
• Information Ratio

Rationale: The Sharpe Ratio evaluates excess return per unit of total risk

(standard deviation).

• A $1,000 par value bond with a 6% coupon trades at $950. What is its

yield to maturity relative to the coupon rate?

• Equal to
• Lower than 2 / 4

• Higher than
• Cannot be determined

Rationale: When a bond trades at a discount, its yield to maturity exceeds

the coupon rate.

• Which type of order instructs a broker to execute a trade at the best

available price immediately?

• Stop order
• Limit order
• Market order
• Good-till-cancelled order

Rationale: Market orders prioritize speed of execution over price.

• If two variables have a correlation coefficient of 0.8, the coefficient of

determination is:

A. 0.2

B. 0.64

C. 0.64

D. 1.28

Rationale: Coefficient of determination = r² = (0.8)² = 0.64.

• / 4

• Under IFRS, which inventory method is prohibited?

A. FIFO

• Weighted Average

C. LIFO

• Specific Identification

Rationale: IFRS prohibits LIFO, but U.S. GAAP permits it.

• Which statement best describes the efficient frontier?
• Portfolios offering the highest expected return for any level of risk
• Portfolios that maximize return for a given risk or minimize risk for a

given return

• Portfolios that lie below the capital market line
• Portfolios with zero correlation

Rationale: The efficient frontier represents optimal risk-return

combinations.

• Which type of risk can be diversified away?
• Systematic risk
• Unsystematic risk
• Market risk
• Inflation risk

Rationale: Unsystematic (company-specific) risk can be diversified away.

• / 4