Exam preparation
CFA
- Multiple choice
- Essay
- International
- Finance
- CFA Institute
4 guides for this exam — how to prepare, what to practise, and how to know it has gone in.
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A written answer, marked
A question from a CFA mock paper, answered and marked. From CFA Practice Questions: 10 Exam-Style Questions.
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.
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Guides
- CFA Preparation: A Practical Guide to the Three Exam LevelsA practical CFA preparation method: understand the exam, study from your materials, practise calculations and ethics, and use errors to guide revision.
- CFA Study Plan: An 8-Week Revision ScheduleA practical 8-week CFA study plan with weekly hours, topic rotation, question practice and targeted review for computer-based exams.
- CFA Flashcards: A Practical Deck for Exam VignettesStudy 18 CFA flashcards covering core formulas, interpretation and Ethics points, then use a focused checklist to revise what the deck tests.
- CFA Practice Questions: 10 Exam-Style QuestionsWork through 10 CFA practice questions covering calculations, valuation, fixed income, ethics and portfolio management, with worked explanations.
Preparing for CFA? Build your CFA board from your own notes — the cards, papers and lectures are written from it. Free plan: 20 cards, a paper, a lecture and a viva to try.
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