Clevency
Short answer
Below are 10 free CFA Level 1 practice questions, one or two from each major topic, written in the exam's three-option format. Each has a worked answer and an explanation of the trap behind the wrong options. Try each one in about 90 seconds, the average time per question on the real exam, before opening the answer.
These are original practice questions written by Clevency in the Level 1 style. They are not past CFA Institute exam questions. Use them as a quick diagnostic: if you get a question wrong, the explanation tells you which concept to revisit.
Ethical and Professional Standards
Question 1. An analyst changes her recommendation on a stock from buy to sell. Which of the following approaches best complies with the Standard on Fair Dealing?
A. Phone the firm's ten largest clients first, because they hold the most shares.
B. Distribute the change to all clients who may be interested at the same time.
C. Inform institutional clients first and post the change on the website the next day.
Show answer
Answer: B. Fair Dealing requires that all clients have a fair opportunity to act on a recommendation change. A and C both give some clients an advantage. Fair dealing does not require treating every client identically in every respect, but it does rule out releasing investment recommendations to favoured clients first. See our guide to studying CFA Ethics.
Question 2. At a dinner, a company's CFO tells an analyst that next week's earnings will badly miss expectations. The information has not been made public. The analyst should most appropriately:
A. sell the stock for client accounts immediately, since the information came directly from the CFO.
B. not trade or cause others to trade, and encourage the company to make public disclosure.
C. sell the stock only in her personal account, since client accounts are not affected.
Show answer
Answer: B. The information is material and nonpublic, so acting on it is prohibited regardless of the source or whose account it is. A and C both act on MNPI. Our mosaic theory guide explains where the line sits.
Quantitative Methods
Question 3. A bank quotes a stated annual interest rate of 8% compounded quarterly. The effective annual rate is closest to:
A. 8.00%
B. 8.24%
C. 8.33%
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Answer: B. EAR = (1 + 0.08 ÷ 4)4 − 1 = 1.024 − 1 = 8.24%. A ignores compounding. C is the continuously compounded equivalent, e0.08 − 1. See our Quant guide for more on returns.
Economics
Question 4. The price elasticity of demand for a product is −0.5. If the producer raises its price by 10%, total revenue will most likely:
A. decrease.
B. stay the same.
C. increase.
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Answer: C. An elasticity with an absolute value below 1 means demand is inelastic. Quantity falls by about 5% while price rises by 10%, so total revenue increases. A would be correct if demand were elastic, and B only if elasticity were exactly −1.
Financial Statement Analysis
Question 5. In a period of rising prices and stable inventory quantities, which inventory method reports the higher ending inventory balance?
A. FIFO
B. LIFO
C. Both report the same balance
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Answer: A. Under FIFO, the oldest, cheaper units are expensed first, so the newest, more expensive units remain in ending inventory. LIFO does the opposite, giving higher COGS and lower ending inventory. Our FIFO vs LIFO guide covers the ratio effects.
Corporate Issuers
Question 6. A company is financed 40% with debt and 60% with equity. Its pre-tax cost of debt is 6%, its cost of equity is 11% and its tax rate is 25%. Its WACC is closest to:
A. 8.0%
B. 8.4%
C. 9.0%
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Answer: B. WACC = 0.40 × 6% × (1 − 0.25) + 0.60 × 11% = 1.8% + 6.6% = 8.4%. C forgets the tax shield on debt, the most common WACC error. See the WACC formula explained.
Equity Investments
Question 7. A company has just paid a dividend of $2.00. Dividends are expected to grow at 5% a year indefinitely and the required return is 9%. Using the Gordon growth model, the value per share is closest to:
A. $50.00
B. $52.50
C. $23.33
Show answer
Answer: B. V0 = D1 ÷ (r − g) = (2.00 × 1.05) ÷ (0.09 − 0.05) = 2.10 ÷ 0.04 = $52.50. A uses D0 instead of D1. C divides by the required return without subtracting growth. Our equity valuation guide covers when the model applies.
Fixed Income
Question 8. A bond has a modified duration of 7.0. If its yield rises by 50 basis points, its price will change by approximately:
A. −3.5%
B. −0.35%
C. +3.5%
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Answer: A. %ΔP ≈ −ModDur × Δy = −7.0 × 0.005 = −3.5%. B misplaces the decimal (treating 50bp as 0.0005), and C gets the sign wrong: bond prices fall when yields rise. See Macaulay vs modified vs effective duration.
Derivatives
Question 9. A stock trades at $50. A European call with a strike of $50 costs $6, and the present value of the strike price is $48. Using put-call parity, the price of a European put with the same strike and expiry is closest to:
A. $2
B. $4
C. $8
Show answer
Answer: B. Put-call parity: S + P = C + PV(X). So P = C + PV(X) − S = 6 + 48 − 50 = $4. A and C come from rearranging the equation with the wrong signs. See put-call parity explained.
Portfolio Management
Question 10. The risk-free rate is 3%, the expected market return is 8% and a stock's beta is 1.2. Under CAPM, the stock's required return is closest to:
A. 9.0%
B. 9.6%
C. 12.6%
Show answer
Answer: A. Required return = 3% + 1.2 × (8% − 3%) = 9.0%. B multiplies beta by the market return and ignores the risk-free rate. C multiplies beta by the full market return instead of the market risk premium. See our CAPM traps guide.
How to read your score
Ten questions is too few to predict an exam result, but it is enough to spot patterns. If you missed a question because of a calculation slip, practise that calculation until it is automatic. If you missed it because you did not know the concept, go back to the reading. If you chose an answer that matched a trap described in the explanation, note the trap; the real exam reuses the same patterns.
When you are ready for a fuller picture, take a timed, full-length mock and review it by topic. Our guide to what mock exam score you need explains how to interpret the result, and how many mocks to take covers timing.
Frequently asked questions
Are these official CFA exam questions?
No. They are original practice questions written by Clevency in the Level 1 format. Official practice questions are available through CFA Institute.
How many questions are on the CFA Level 1 exam?
There are 180 multiple-choice questions, each with three answer options, split into two sessions of 90 questions.
How long should I spend on each CFA Level 1 question?
About 90 seconds on average. Some Ethics questions take longer and some definitions take less.
Is there negative marking on CFA Level 1?
No. Wrong answers are not penalised, so you should answer every question.
How many practice questions should I do before the CFA Level 1 exam?
There is no fixed number, but most successful candidates work through thousands of questions and several full timed mocks. Quality of review matters more than raw volume.
What topics should I practise most?
Weight your practice toward the largest topics for your exam window, and toward topics where your scores are weakest. Our topic weights guide shows how to combine the two.
What score on practice questions means I am ready?
Many candidates aim to score consistently in the 70s on full mock exams before sitting, though CFA Institute does not publish a fixed pass mark.
Related Reading
- What Mock Exam Score Do You Need to Pass? — How to read your mock results
- CFA Level 1 Formula Sheet — Every formula behind these questions
- CFA Level 1 Topic Weights — Where to focus your practice