CFA Level I practice questions

How to use this practice set

Try each item before opening its explanation. Write down the method, not just the letter. CFA Level I questions are stand-alone multiple-choice items, so each problem below gives the facts needed for that question. The examples are newly written for instruction; they do not reproduce CFA Institute questions.

For calculations, include units and a reasonableness check. For concept questions, explain what fact makes one choice correct and what assumption makes another tempting option wrong. If you guessed correctly, mark it for review. A fragile correct answer is still a useful warning.

Question 1: check the setup before calculating

This rate problem tests a common source of avoidable mistakes: confusing the quoted nominal rate with the effective rate earned over the year. Convert the nominal rate to a rate per compounding period, then compound for the number of periods. If the question instead gave an effective annual rate and asked for a quarterly equivalent, the steps would run in the opposite direction.

Question 2: connect the statement effects

When a question asks for a ratio consequence, take one extra step. Higher ending inventory can raise current assets and working capital, while lower cost of goods sold can raise gross profit, all else equal. Whether those changes improve a particular ratio depends on its formula and the other account balances. Avoid jumping from an inventory rule to a broad claim about financial health.

Notice the timing in the stem. It gives the dividend expected next year, D1, rather than the dividend paid most recently, D0. Growing a stated D1 again would double-count one year of growth. That wording detail matters more than the arithmetic.

This is a clean annual-payment illustration, not a claim about every convention in a bond question. A different payment frequency changes the number of periods and the periodic rate. Read the cash flow timing, then enter the inputs consistently.

A useful quick check is to ask what the result should represent. Net working capital is the excess of current assets over current liabilities when positive. If current liabilities exceeded current assets, the result would be negative. That direction check can catch a sign error before you select an option.

Draw the position before calculating: the long agrees to buy at the delivery price. If market value at expiration is above that price, the contract is favorable to the long. If it is below, the sign reverses. Stating who benefits first helps keep the formula straight.

The phrase "absolute value" removes the negative sign that normally reflects the inverse relationship between price and quantity demanded. If asked for the signed elasticity, the answer would be negative under the usual demand relationship. Read whether the question asks for absolute magnitude or signed value.

Review the set by error type

After answering, classify each miss or uncertain response. A method error means you selected the wrong formula or rule. A setup error means you understood the method but misread the period, perspective, or requested quantity. An execution error means arithmetic or calculator entry went wrong. A knowledge error means the concept itself needs another explanation. The repair should match the error.

Do not repeat the same set immediately until the answer letters feel familiar. Return after a delay, cover the explanations, and attempt fresh versions with new values. If you remember a letter but cannot reproduce the reasoning, the concept has not yet transferred.

How these questions relate to the real exam

Level I uses stand-alone multiple-choice questions with three answer choices. The questions here are short teaching examples, not a mock exam. They do not reproduce the full curriculum, match the official exam's calibration, or provide a passing-score prediction. Use the current CFA Institute curriculum and its authorized practice questions for complete preparation.

Practice needs variety. A calculation set alone will not test ethical judgment; a vocabulary quiz will not show whether you can choose a method in a mixed block. Rotate through topics, use fresh material, and keep an error log so the next study session targets a real weakness. The goal is to become able to explain the answer, not just to collect correct letters.

Check calculator work without giving away the method

For calculator questions, write an approximate expectation before pressing keys. In the bond example, the coupon rate is below the yield, so the price should be below face value. In the dividend example, a higher required return or lower growth would reduce the value. If a calculator returns a result in the opposite direction, pause and inspect the inputs instead of trusting the display.

Keep units visible. A percent entered as 8 rather than 0.08, a quarterly rate paired with annual periods, or a cash flow with the wrong sign can produce a convincing but incorrect output. Practice the calculator's time-value and cash-flow functions on original examples, then verify that the result makes sense using a rough mental estimate.

If you miss a question, wait before retesting it. First explain the correction in your own words, then solve a different item that uses the same idea with new values. This separates learning from answer recognition. After a few days, try a mixed set where the topic is not labeled; that tests whether you can identify the method when the exam gives no chapter cue.