Here are seven example questions for the Level I CFA exam, along with their answers:
Example Question 1: Portfolio Management
You have a portfolio that consists of 60% stocks and 40% bonds. You are considering rebalancing it to a 50-50 allocation. If the stock market has performed exceptionally well recently, and you expect it to decline, what is the primary reason to rebalance to a 50-50 allocation?
A) To increase the portfolio’s expected return. B) To reduce the portfolio’s expected risk. C) To take advantage of expected high stock returns. D) To achieve tax efficiency.
Answer 1: B) To reduce the portfolio’s expected risk.
Example Question 2: Financial Reporting and Analysis
A company’s income statement reports an operating profit margin of 12% and a net profit margin of 8%. What is the company’s tax rate if its interest expense is 4% of total assets?
A) 10% B) 15% C) 25% D) 33.33%
Answer 2: C) 25%
Example Question 3: Quantitative Methods
You want to calculate the annual interest rate on a bond with a face value of £1,000 that matures in 3 years, pays £40 in annual interest, and is currently trading for £950. What is the bond’s annual yield to maturity?
A) 4.21% B) 4.44% C) 4.71% D) 5.00%
Answer 3: A) 4.21%
Example Question 4: Equity Investments
The dividend discount model (DDM) can be used to value a stock based on:
A) Future cash flows. B) Expected dividends. C) Historical market prices. D) Current earnings.
Answer 4: B) Expected dividends.
Example Question 5: Fixed Income
Which of the following is a characteristic of callable bonds?
A) Lower yield than non-callable bonds. B) Greater potential for capital appreciation. C) Lower credit risk. D) Longer maturity than non-callable bonds.
Answer 5: B) Greater potential for capital appreciation.
Example Question 6: Ethical and Professional Standards
The CFA Institute’s Code of Ethics and Standards of Professional Conduct includes all of the following EXCEPT:
A) Integrity of Capital Markets. B) Duties to Clients. C) Investment Analysis, Recommendations, and Actions. D) Responsibilities as a CFA Institute Member or CFA Candidate.
Answer 6: A) Integrity of Capital Markets.
Example Question 7: Alternative Investments
Which of the following is an example of a non-systematic risk in a portfolio?
A) Interest rate risk. B) Market risk. C) Credit risk. D) Business risk.
Answer 7: D) Business risk.
Please note that these questions are for illustrative purposes and may not accurately reflect the format or content of actual CFA exam questions. To prepare effectively for the CFA exam, it is recommended to use official CFA Institute study materials and practice exams.