How to use these CFA practice questions
These questions are designed for active practice, not passive reading. For each one, choose an answer before opening the explanation. Read the vignette carefully, identify the command word, write the relevant formula or rule, and check that your units and signs are consistent.
The CFA Program exams use computer-based questions across three levels, with item sets built around realistic investment scenarios as well as discrete questions. The exact balance varies by level. The questions below therefore cover the habits that transfer across the programme: extracting relevant facts, calculating efficiently, interpreting the result and applying Ethics and Standards when required.
The numerical answers use rounded values. In an exam, keep sufficient precision during the calculation and round only at the end.
MySummaries puts the first CFA practice question into a marked question screen like this:
An investor will receive 100 at the end of each year for five years. If the required annual return is 8%, what is the present value of these payments?
The correct answer is 399.27. Use the present value of an ordinary annuity: 100 × [1 − (1.08)^−5] ÷ 0.08. The strongest distractor is 432.90, which results from using an incorrect discounting period or rate rather than valuing five end-of-year payments at 8%.
The explanation is most useful when you compare it with your own method. If you selected the right option using a different method, check that the method would remain efficient under time pressure.
1. Present value and cash-flow timing
This tests whether you recognise an ordinary annuity and distinguish end-of-period payments from payments made immediately.
A five-year project generates cash flows of 2,000 at the end of each year. The appropriate discount rate is 10%. What is the project's present value, rounded to the nearest whole unit?
The correct answer is 6,209: 2,000 × [1 − (1.10)^−5] ÷ 0.10. The strongest distractor is 7,582, which is close to an undiscounted or incorrectly discounted total and does not reflect the present value of all five payments at 10%.
A reliable response starts by writing the timing assumption. “End of each year” rules out an annuity-due adjustment.
2. Bond price and yield
This tests the inverse relationship between a bond's price and its yield to maturity.
A five-year annual-pay bond has a par value of 1,000 and a coupon rate of 6%. It is priced at 950. Ignoring taxes and transaction costs, which statement is most accurate?
The correct answer is that its yield to maturity is above 6%. A bond priced below par must offer a yield above its coupon rate, assuming the same cash flows and no special features. The strongest distractor is exactly 6%, which would apply to a bond priced at par, not at 950.
Do not confuse the coupon rate with the investor's required return. The coupon is fixed; the market price adjusts so the promised cash flows provide the required yield.
3. CAPM expected return
This tests whether you apply the beta to the market risk premium rather than to the market return itself.
The risk-free rate is 3%, the expected market return is 8%, and a share has a beta of 1.2. Under the CAPM, what is the share's expected return?
The correct answer is 9.0%: 3% + 1.2 × (8% − 3%). The strongest distractor is 9.6%, which multiplies the beta by the whole market return and fails to add the risk-free rate separately.
The key setup is risk-free rate plus beta multiplied by the market risk premium. State that structure before substituting figures.
4. Forward foreign-exchange pricing
This tests covered interest parity and whether you keep the currency quotation consistent.
The spot exchange rate is 1.10 USD per EUR. The one-year risk-free rate is 5% in the United States and 3% in the euro area. Using covered interest parity, the one-year forward rate in USD per EUR is closest to:
The correct answer is 1.1214: 1.10 × (1.05 ÷ 1.03). The strongest distractor is 1.0790, which reverses the interest-rate adjustment and is inconsistent with the quoted USD-per-EUR direction.
Write the quotation beside the formula. That small step prevents many errors when the domestic and foreign rates are reversed.
5. Duration and price sensitivity
This tests the first-order estimate of a bond price change from a change in yield.
A bond has a modified duration of 4.2. If its yield increases by 50 basis points, what is the approximate percentage price change, ignoring convexity?
The correct answer is −2.10%: −4.2 × 0.005. The strongest distractor is +2.10%, which has the right magnitude but the wrong sign. Bond prices generally move inversely to yields.
Convert basis points into a decimal before multiplying. A 50-basis-point change is 0.005, not 0.50.
6. Financial statement analysis
This tests interpretation rather than formula recall: a higher ratio is not automatically better without considering what changed.
A company's current assets rise from 240 to 300, while its current liabilities rise from 120 to 200. What happens to its current ratio?
The correct answer is 1.5: 300 ÷ 200, down from 240 ÷ 120 = 2.0. The strongest distractor is 2.5, which divides the new assets by the old liabilities and mixes periods.
Use matching dates and matching definitions in ratio calculations. Then explain what the movement might mean rather than treating the ratio as a conclusion by itself.
7. Portfolio return
This tests whether you use portfolio weights and asset returns consistently.
A portfolio invests 60% in Fund A, which returns 8%, and 40% in Fund B, which returns −2%. What is the portfolio return before fees?
The correct answer is 4.0%: (0.60 × 8%) + (0.40 × −2%) = 4.0%. The strongest distractor is 5.0%, which does not apply the stated weights correctly.
Keep the negative sign in the losing asset's return. A weighted average is not the same as a simple average unless the weights are equal.
8. Derivatives and payoff direction
This tests the economic exposure created by a long put.
An investor buys a put option with a strike price of 50. At expiry, the underlying asset price is 42. Before considering the premium, what is the option's intrinsic value per share?
The correct answer is 8: max(50 − 42, 0). The strongest distractor is 42, which is the underlying price, not the amount by which the put is in the money.
For a put, start with strike minus underlying price. Then apply the maximum-of-zero rule and consider the premium if the question asks for profit rather than intrinsic value.
9. Ethics and material non-public information
This tests the appropriate action when a candidate receives material non-public information.
An analyst receives confidential information from a company employee indicating that an unannounced acquisition is highly likely. The information would probably affect the share price. What is the most appropriate action?
The correct answer is to avoid trading and transmitting the information and follow compliance procedures. The information appears both material and non-public. The strongest distractor is sharing it only with a large client: selective transmission does not remove the restriction.
In Ethics questions, name the relevant issue, identify the prohibited conduct, and state the compliant action. Do not invent an exception because the information is described as likely rather than certain.
10. Interpreting a written answer
Some CFA Program work requires more than selecting an option. A strong constructed response sets out the method, shows the calculation, interprets the result and answers the command word directly. This marked example is assessed against a practice marker's criteria, not presented as the official marking scheme.
A portfolio has a 1.10 beta, a risk-free rate of 3%, and an expected market return of 8%. Calculate the portfolio's required return using CAPM and state whether an expected return of 10.5% appears attractive relative to that requirement. Show your calculation and one limitation of the conclusion.
7/9Required return = 3% + 1.10 × 8% = 11.8%. The portfolio's expected return of 10.5% is below the required return, so it is unattractive. The limitation is that beta may change.
The candidate identifies the correct comparison and gives a relevant limitation. The CAPM calculation is wrong because beta should multiply the market risk premium, not the market return.
Missed
−Use 8% − 3% as the market risk premium.
−State that the result depends on the CAPM assumptions and the reliability of the beta estimate.
Model answerRequired return = 3% + 1.10 × (8% − 3%) = 8.5%. The expected return of 10.5% exceeds this requirement by 2.0 percentage points, so it appears attractive on this comparison. This conclusion depends on CAPM assumptions, including the choice of risk-free rate and the stability of the portfolio's beta. The decision should also consider estimation error and whether the expected return is measured on a comparable basis.
The lost marks come from a familiar error: formula structure is not enough if the inputs are misidentified. In a written response, label each input and interpret the result in the terms used by the question.
Review the pattern of errors
After completing the questions, classify each error as a calculation error, definition error, reading error, interpretation error or Ethics error. Rework the calculation without looking at the explanation, then write one short rule that would prevent the same mistake.
Prioritise repeated errors over isolated slips. A low score in fixed income calculations, for example, should lead to a short calculation drill on yield, duration and signs rather than another broad reading session.
You lost this mark twice: In CAPM, what belongs in the beta term — the market return or the market risk premium? State the full formula.
Return to the remediation card after a gap, not immediately after reading the explanation. The aim is to retrieve the rule and apply it without the original prompt doing the work for you.
How MySummaries helps
MySummaries lets you build a revision board from your own CFA notes, generate question practice from that material, and turn repeated calculation and Ethics errors into targeted cards. That keeps the next practice session connected to the topics and mistakes you actually need to fix.