CFA Program Level I — Practice Questions, Part 1 flashcards

6 of 70 questions free to study here · 22 topics · the whole deck is built into Willys

Multiple-choice practice questions, one best answer each, on the Code and Standards, GIPS, time value of money, returns, statistics, probability, hypothesis tests, regression and economics.

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Practice deck · part of CFA Program Level I · written against: CFA Program Level I curriculum topics; Standards of Practice Handbook, 12th edition (2024), including Standard I(E) Competence. Updated 2026-10-10.

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Mira, a CFA charterholder, works in a country whose securities law imposes no requirement to disclose conflicts of interest in research reports. The Code and Standards do require such disclosure. What should Mira do?

A) Disclose the conflicts, since the stricter requirement governs
B) Disclose conflicts only to clients who specifically ask about them
C) Follow her employer's policy, since it overrides both sets of rules
D) Omit disclosure, since local law takes precedence over the Standards

A) Disclose the conflicts, since the stricter requirement governs

Members must follow whichever is stricter, applicable law or the Code and Standards. Looser or silent local law never excuses falling short of the Standards.
Code and Framework
A portfolio manager plans to leave and start a competing firm. Which step may she take before she resigns without violating Standard IV(A) Loyalty?

A) Register the new firm and lease office space on her own time
B) Email the firm's client contact list to her personal account
C) Use the firm's research models to build her new firm's pitch
D) Ask her key clients to move their accounts to her new firm

A) Register the new firm and lease office space on her own time

Preparations made on her own time and without employer resources are allowed. Soliciting clients or taking client lists or other employer property before leaving is not.
Duties to Employers
An investment firm meets every GIPS requirement except one rule on composite construction. How may it describe its compliance?

A) It may not claim compliance with GIPS
B) It may claim compliance except for composite construction
C) It may claim compliance once a verifier reviews the gap
D) It may claim compliance for composites that meet the rules

A) It may not claim compliance with GIPS

GIPS compliance is all or nothing and firm-wide, so partial or "except for" claims are not allowed. Verification is optional and cannot cure a requirement the firm does not meet.
GIPS
Annual returns on a portfolio are normally distributed with a mean of 10% and a standard deviation of 15%. Approximately what is the probability of a return below −20% in a given year?

A) About 0.15%
B) About 5%
C) About 16%
D) About 2.5%

D) About 2.5%

A return of −20% is two standard deviations below the mean; about 95% of outcomes lie within two standard deviations, leaving roughly 2.5% in each tail. The 5% figure counts both tails.
Distributions and Sampling
Four firms make up an industry, with market shares of 40%, 30%, 20% and 10%. What is the Herfindahl–Hirschman Index?

A) 2,900
B) 3,000
C) 2,500
D) 100

B) 3,000

Square each share in percent and add: 1,600 + 900 + 400 + 100 = 3,000. Assuming four equal shares would wrongly give 2,500.
Market Structures
The spot rate is 1.3500 USD/GBP. One-year interest rates are 4% in US dollars and 5% in sterling. Under covered interest rate parity, what is the one-year forward rate?

A) 1.3371 USD/GBP
B) 1.3365 USD/GBP
C) 1.3635 USD/GBP
D) 1.3630 USD/GBP

A) 1.3371 USD/GBP

$F = 1.35 \times \frac{1.04}{1.05} \approx 1.3371$ ⁠, so the higher-yielding pound trades at a forward discount. Inverting the ratio puts the sterling rate on top and gives 1.3630.
Currencies and Trade

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About these cards

Review status: Second-reader reviewed, with corrections applied.

Checked against:

Checked against the CFA Institute Code of Ethics and Standards of Professional Conduct and the Standards of Practice Handbook, 12th ed. (2024), and the GIPS standards for firms, 2020 edition (reference only; every Standard paraphrased, no text copied).
Checked against standard texts: Brealey, Myers & Allen, Principles of Corporate Finance; Wooldridge, Introductory Econometrics; and Mankiw, Principles of Economics (reference only; no text copied).
OpenStax Principles of Economics 3e, consulted as a reference; no text copied.

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