CFA Level 1 Question Bank (2026) - Free Module Questions

Quantitative MethodsRates and Returns

An investment returns +30% in Year 1 and -20% in Year 2. The geometric mean annual return is closest to:

A5.00%

B1.98%

C2.47%

D3.50%

Explanation: Geometric = [(1.30)(0.80)]^(1/2) - 1 = (1.04)^(0.5) - 1 = 1.0198 - 1 = 1.98%. Actually: (1.30)(0.80) = 1.04, sqrt(1.04) = 1.0198, so 1.98%. Wait let me recalculate: sqrt(1.04) = 1.01980, so 1.98% is answer B. Let me fix: correct answer is index 1.

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EconomicsThe Firm and Market Structures

In perfect competition, a firm's demand curve is:

ADownward sloping

BPerfectly horizontal

CUpward sloping

DVertical

Explanation: Perfectly competitive firms are price takers. They can sell any quantity at the market price, so their demand curve is horizontal.

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Financial Statement AnalysisIntroduction to Financial Statement Analysis

Under IFRS, which inventory method is NOT permitted?

AFIFO

BWeighted average cost

CLIFO

DSpecific identification

Explanation: IFRS prohibits LIFO (Last In, First Out). US GAAP allows LIFO, FIFO, and weighted average.

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Corporate IssuersOrganizational Forms, Corporate Issuer Features, and Ownership

Which organizational form provides limited liability to ALL owners?

ASole proprietorship

BGeneral partnership

CCorporation

DLimited partnership

Explanation: A corporation provides limited liability to all shareholders. In a limited partnership, only LPs have limited liability; GPs have unlimited liability.

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Equity InvestmentsMarket Organization and Structure

A limit buy order at $50 means the order will execute at:

AExactly $50

B$50 or higher

C$50 or lower

DThe best available price

Explanation: A limit buy specifies the maximum price. The order executes at $50 or lower — never above the limit.

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Fixed IncomeFixed-Income Instrument Features

A callable bond will most likely be called when:

AInterest rates rise

BInterest rates fall

CThe issuer's credit deteriorates

DThe bond's price is below par

Explanation: When rates fall, the issuer can refinance at lower rates by calling existing higher-coupon bonds.

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DerivativesDerivative Instruments and Markets

The maximum loss for a buyer of a call option is:

AUnlimited

BThe strike price

CThe premium paid

DThe stock price

Explanation: Option buyer's maximum loss is always the premium paid. If the option expires worthless, the buyer loses only the premium.

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Alternative InvestmentsAlternative Investment Features, Methods, and Structures

A high-water mark provision protects investors by:

AGuaranteeing a minimum return

BEnsuring the GP only earns performance fees on new profits above previous peaks

CLimiting management fees

DPreventing capital calls

Explanation: The high-water mark ensures the GP earns carried interest only on profits that exceed the highest previous NAV, preventing double-dipping on the same gains.

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Portfolio ManagementPortfolio Risk and Return: Part I

The Sharpe ratio measures:

AReturn per unit of systematic risk

BReturn per unit of total risk

CTotal return of the portfolio

DBeta of the portfolio

Explanation: Sharpe = (Rp - Rf)/σp. It measures excess return per unit of total risk (standard deviation).

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Ethical & Professional StandardsEthics and Trust in the Investment Profession

Ethical conduct in the investment profession requires:

ACompliance with all applicable laws

BCompliance with laws and adherence to ethical principles that may exceed legal requirements

CFollowing industry norms regardless of law

DMaximizing client returns at all costs

Explanation: Ethics goes beyond mere legal compliance. CFA standards often require behavior that exceeds what the law mandates.

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CFA Level 1 Question Bank

Questions by Subject

Quantitative Methods

Economics

Financial Statement Analysis

Corporate Issuers

Equity Investments

Fixed Income

Derivatives

Alternative Investments

Portfolio Management

Ethical & Professional Standards

Sample CFA Level 1 Questions

An investment returns +30% in Year 1 and -20% in Year 2. The geometric mean annual return is closest to:

In perfect competition, a firm's demand curve is:

Under IFRS, which inventory method is NOT permitted?

Which organizational form provides limited liability to ALL owners?

A limit buy order at $50 means the order will execute at:

A callable bond will most likely be called when:

The maximum loss for a buyer of a call option is:

A high-water mark provision protects investors by:

The Sharpe ratio measures:

Ethical conduct in the investment profession requires:

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