Chartered Financial Analyst (CFA) Level-I Sample Questions

The CFA (Chartered Financial Analyst) is a popular course in the investment and financial industry. CFA Institute provides candidates with unique programs and courses to help them become investment professionals. The CFA Program, on the other hand, is intended to provide the candidate with a solid knowledge base of advanced investment analysis as well as real-world portfolio management skills. This program will assist candidates in improving their chances of a successful career in investment analysis. The exam is most suitable for-

• Current MBA students/MBA aspirants
• B Com / M Com students
• CA aspirants
• IT professionals

Chartered Financial Analyst (CFA) Level-I Sample Questions

Question 1 –

The AIMR-PPS defines _ to include all discretionary and nondiscretionary assets.

• A. individually managed assets
• B. individual investor’s assets
• C. total firm assets
• D. global assets

Solution – C

Total firm assets include both discretionary and nondiscretionary assets. Unless the firm manages the underlying assets, total firm assets do not include assets underlying overlay investment strategies such as currency overlay, options and futures overlays, securities lending programs, and asset allocation overlay strategies.

Question 2 –

Standard IV (B.7) is concerned with –

• A. Priority of Transactions
• B. None of these answers
• C. Disclosure of Referral Fees
• D. Performance Presentation
• E. Prohibition against Misrepresentation
• F. Disclosure of Conflicts to Clients and Prospects
• G. Preservation of Confidentiality
• H. Prohibition against Use of Material Nonpublic Information

Solution – F

Members are required by Standard IV (B.7) to disclose to their clients all matters that could become potential conflicts. Beneficial ownership of securities or other investments that could reasonably be expected to impair the member’s ability to make unbiased and objective recommendations is one example.

Question 3 –

Standard III (D) is concerned with –

• A. Professional Misconduct
• B. Use of Professional Designation
• C. Plagiarism
• D. Fundamental Responsibilities
• E. None of these answers
• F. Obligation to Inform Employer of Code and Standards

Solution – E

Fundamental Responsibilities are addressed in Standard I. The use of professional designation is addressed in Standard II (A). Professional Misconduct is addressed in Standard II (B). Plagiarism is addressed in Standard II (C). The Obligation to Inform Employer of Codes and Standards is addressed in Standard III (A). The disclosure of additional compensation arrangements is addressed in Standard III (D).

Question 4 –

_ is another name for a “access” person.

• A. none of these answers
• B. supervisor
• C. ombudsman
• D. guardian
• E. fiduciary
• F. covered person

Solution – F

Access or covered individuals are aware of pending or actual investment recommendations or actions. The firm’s definition of access (covered) person should be broad enough to include all individuals who possess that knowledge.

Question 5 –

Which of the following statements about the Performance Presentation Standards is/are correct?

I. A member who meets the PPS’s mandatory requirements but not the recommended requirements may publicly claim compliance with the PPS.
II. The PPS are primarily intended to serve as a framework for performance measurement.
III. The Standards are not intended to improve or hinder the presentation of historical results.

• A. III only
• B. II and III only
• C. I, II and III
• D. I and III only

Solution – D

The PPS is primarily intended to be a performance presentation system, not a performance measurement system. The Standards are not intended to improve or diminish the usefulness of historical results, but they do limit how they are to be presented. The PPS are voluntary standards that are not required of AIMR members. Some standards are required, while others are suggested. To claim compliance, members must at the very least follow the mandatory requirements.

Question 6 –

If a company employs non-discretionary leverage, it must report performance using:

• A. both actual returns and all-cash basis.
• B. all-cash basis i.e. removing leverage effects.
• C. actual returns.
• D. none of these answers.

Solution – B

Non-discretionary leverage performance must be presented on an all-cash returns basis, according to Section B of the PPS standards titled “Calculation of Returns.”

Question 7 –

The treatment of _ and other hybrid securities must be consistent across and within composites.

• A. Portfolios
• B. Convertibles
• C. Assets
• D. Bonds

Solution – B

This is one of the requirements that must be met in order to comply with the PPS.

Question 8 –

Disclosure of Referral Fees, Standard IV (B.8), includes .

• A. referral fees paid in cash
• B. referral fees paid “in kind”
• C. soft dollar referral fees
• D. all of these answers

Solution – D

Standard IV (B.8) defines appropriate disclosure as disclosing the nature of the consideration or benefit given or received in exchange for recommending services. All fees, whether paid in cash, soft dollars, or in kind, are considered.

Question 9 –

Which of the following statements about compliance procedures for Standard III (E) is false? Compliance procedures should include the following:

• A. none of these answers.
• B. outline permissible conduct.
• C. delineate procedures for reporting violations and sanctions.
• D. designate a team of outside colleagues to form a review board.
• E. outline the scope of the procedures.
• F. be easy to understand.

Solution – D

Question 10 –

The compliance officer should be chosen from within the company.

According to the AIMR-PPS, _ the internal rate of return must be presented since the fund’s inception and be net of fees, and expenses, and carry to the limited partner.

• A. limited
• B. extended
• C. cumulative
• D. general

Solution – The fund’s cumulative internal rate of return must be presented since its inception, net of fees, and expenses, and carry to the limited partner. Irr must be determined using cash-on-cash returns plus residual value.

Question 11 –

Which of the following AIMR Standards requires referral fees to be disclosed to clients or customers in writing?

• A. V
• B. VI (A)
• C. IV (B.8)
• D. IV

Solution – C

“Members shall disclose to clients and prospects any consideration or benefit received by the member or delivered to others for the recommendation of any services to the client or prospect,” states Standard IV (B.8) – Disclosure of Referral Fees.

Question 12 –

Which of the following statements clearly contradicts the recommended compliance procedures outlined in AIMR’s Standards of Practice Handbook?

• A. An analyst may change investment recommendations without the prior approval of a supervisory analyst.
• B. Prior approval is required for all employees’ personal investment transactions.
• C. Unless requested by regulatory organizations, personal transactions should not be compared with those of clients or the employer for reasons of confidentiality.
• D. Transactions in securities owned by the employee and members of his or her immediate family, as well as transactions involving securities in which the employee has a beneficial interest, should be defined as personal transactions.

Solution – C

This question is about the compliance procedures for members’ personal investments. Employees should compare their personal transactions with those of their clients on a regular basis, regardless of whether a regulatory organization exists. Such comparisons ensure that members’ personal businesses do not conflict with their obligations to their clients. All of the other statements do not contradict the procedures outlined in the Handbook.

Question 13 –

A financial analyst should act with __, competence, and dignity in his dealings with the public, clients, customers, employers, employees, and fellow analysts.

• A. integrity
• B. morality
• C. none of these answers
• D. honor
• E. principal

Solution – A

“Members of AIMR shall act with integrity, competence, dignity, and in an ethical manner when dealing with the public, clients, prospects, employers, employees, and fellow members,” states the Code of Ethics.

Question 14 –

For _ of five or fewer portfolios, the disclosure “five or fewer portfolios” rather than the exact number of portfolios may be made.

• A. returns
• B. investments
• C. segments
• D. composites

Solution – D

Question 15 –

Standard I is concerned with –

• A. Use of Professional Designation
• B. Duty to Employer
• C. Obligation to Inform Employer of Code and Standards
• D. Professional Misconduct
• E. Plagiarism
• F. Fundamental Responsibilities
• G. Disclosure of Conflicts to Employer
• H. None of these answers F

Solution – Fundamental Responsibilities are addressed in Standard I. The use of professional designation is addressed in Standard II (A). Professional Misconduct is addressed in Standard II (B). Plagiarism is addressed in Standard II (C). The Obligation to Inform Employer of Codes and Standards is addressed in Standard III (A). The Duty to Employer is addressed in Standard III (B). Disclosure of Conflicts to Employer is addressed in Standard III (C).

Question 16 –

Standard V (A) is concerned with –

• A. Prohibition against Use of Material Nonpublic Information
• B. Disclosure of Conflicts to Clients and Prospects
• C. Prohibition against Misrepresentation
• D. Disclosure of Referral Fees
• E. Performance Presentation
• F. Priority of Transactions
• G. Preservation of Confidentiality A

Solution – Standard V (A) prohibits members who have material nonpublic information about the value of a security from trading in that security if doing so would violate a duty, if the information was misappropriated, or if the information relates to a tender offer.

Question 17 –

Members should consider including the following information in research reports, except as specified in Standard IV (A.2):

• A. the methodology that drove the investment decisions.
• B. yield-to-maturity.
• C. annual amount of income expected.
• D. degree of uncertainty associated with the cash flows.
• E. business, financial, political, sovereign and market risks.
• F. none of these answers.
• G. degree of marketability / liquidity.
• H. expected annual rate of return.

Solution – A

Question 18 –

Except for the methodology that drove the investment decision, which is part of the’maintaining files’ compliance procedure for Standard IV, all information must be included in the research reports (A.1).

The retroactive compliance disclosures apply to composites created prior to .

• A. January 1989
• B. January 1992
• C. January 1991
• D. January 1993
• E. January 1990

Solution – D

To be in compliance with AIMR-PPS, the effective date was January 1, 1993. Retroactive compliance is possible for composites that predate the effective date.

Question 19 –

All real estate properties must be included in at least one –

• A. account
• B. investment type
• C. composite
• D. sector
• E. portfolios

Solution – C

All properties with discretionary fee-paying investors must be included in at least one account, in accordance with the general requirements for all composites. However, due to the unique nature of individual real estate investments, composites containing single properties are often appropriate.

Question 20 –

Each _ must include portfolios or asset classes that represent a similar investment objective.

• A. return
• B. composite
• C. value
• D. benchmark
• E. mix B

Solution – All actual fee-paying discretionary portfolios must be represented by at least one composite defined by a similar strategy or investment objective.