CFA® Exam Practice Questions for Levels 1, 2 and 3

Technical analysis. Cash dividends. Asset classes. Capital structure. Marginal cost. Investment tools.

Most people hear these words and tune out. But if you read those phrases and felt your heart skip a beat, you’re in the right place–and in good company.

If becoming a CFA® is in your future, the next step is to get that coveted CFA® certification.

I congratulate you because there are few careers that can be as rewarding and lucrative for those of us who get giddy about finance.

However, as I’m sure you know, there’s a long road ahead of you.

That’s where I come in. To help you on your path, I’ve compiled a set of practice multiple-choice questions designed to mirror the learning outcome statements for each of the three CFA® exam levels. Let’s dive in and get you one step closer to earning that charter!

Key Takeaways

• CFA® Exam Structure: The exam has three levels with increasing complexity, including multiple-choice, vignette-supported questions, and essay questions in Level III.
• Topic Emphasis by Level: Level I focuses on Ethics and Financial Reporting, Level II has a more balanced topic distribution, and Level III allows specialization in Portfolio Management, Private Markets, or Private Wealth.
• Different Question Formats: Level I features multiple-choice questions, Levels II and III use vignette-supported questions, and Level III introduces essay questions that require written responses.
• Recommended Study Time: Allocate at least 300 hours of study per exam level, with extra focus on high-weighted topics like Ethics and Portfolio Management to optimize your preparation.
• Effective Test-Taking Strategies: Read MCQs before vignettes in Levels II and III, and for Level III essays, focus on concise, direct answers with proper command word usage and clear demonstration of calculations.

CFA® Exam Structure

The CFA® exam comes in three different levels, which the CFA Insitute cumulatively calls the CFA® Program. Here are the topics (also called learning outcome statements) you’ll find at each level, as well as their prevalence within the exam content.

Each level builds upon the last and goes further in-depth into the topics covered in the prior exam.

CFA® Level I Exam Topics and Format

Questions: 180 multiple-choice questions

Duration: 4 hrs 30 mins

Sessions: Two sessions (90 MCQs, 2 hrs 15 mins each)

Pass Rate: 41%

Though you’ll touch on a bit of everything in the Level I Exam, ethics will be the most important outcome statement to focus on.

CFA® Level II Exam Topics and Format

Questions: 22 vignette “item sets” and 88 corresponding MCQs (4 multiple choice questions per set)

Duration: 4 hrs 24 mins

Sessions: Two sessions (11 sets/44 MCQs, 2 hrs 12 mins each)

Pass Rate: 45%

Unlike the Level I Exam, Level II is much more of a toss-up among all learning objectives.

CFA® Level III Exam Topics and Format

Questions: 22 vignette “item sets” and 88 corresponding MCQs (4 multiple choice questions per set)

Duration: 4 hrs 24 mins

Sessions: Two sessions (11 sets/44 MCQs, 2 hrs 12 mins each)

Pass Rate: 52%

A new feature for 2025: you’re allowed to specialize in one of three pathways when you reach Level III, including:

• Portfolio Management
• Private Markets
• Private Wealth

Topics from these pathways will make up the bulk of your final exam level. However, asset allocation and portfolio construction will also be important to put extra study efforts towards.

What Types of Exam Questions Are In Each CFA® Level?

• Multiple Choice Questions: In Level I, you’ll encounter traditional 4-option multiple-choice questions that test your foundational knowledge of finance and investment principles.
• Vignette-Supported Multiple Choice Questions: Level II introduces vignette-supported questions, which are like mini case studies. Each vignette presents a real-world scenario, followed by multiple-choice questions (MCQs). You’ll work through 22 sets of vignettes, with 88 MCQs in total (4 questions per vignette). This format helps bridge the gap between theory and practical application, simulating challenges you might face in your career.
• Vignette-Supported Essay Questions: In the final level, you’ll still encounter vignette-supported multiple-choice questions. However, a key feature of Level III is the introduction of essay-style questions. Instead of choosing from predefined answers, you’ll be required to craft long-form responses to scenarios, demonstrating your analytical and decision-making skills at an advanced level.

CFA® Level 1 Questions

Question 1: Quantitative Methods – Time Value of Money

Prompt:

An investor plans to invest $10,000 in a project that is expected to return 8% annually. What will the value of the investment be at the end of 5 years?

Question:

Which of the following is closest to the future value of the investment?

A) $14,693

B) $13,420

C) $12,000

D) $15,000

Answer: A

Question 2: Ethics – Standards of Professional Conduct

Prompt:

A CFA® charterholder recommends a financial product to a client without disclosing that she receives a commission from the product’s issuer.

Question:

Which standard of professional conduct has the CFA® charterholder violated?

A) Standard I (D) Misconduct

B) Standard III (A) Loyalty, Prudence, and Care

C) Standard VI (C) Referral Fees

D) Standard I (B) Independence and Objectivity

Answer: C

Question 3: Financial Reporting – Income Statement

Prompt:

Company A reports revenue of $100,000, cost of goods sold of $60,000, and operating expenses of $20,000 for the year.

Question:

What is the company’s gross profit?

A) $20,000

B) $40,000

C) $80,000

D) $100,000

Answer: B

Question 4: Economics – Supply and Demand

Prompt:

A market experiences a sudden decrease in supply, but demand remains unchanged.

Question:

What will be the most likely effect on price and quantity?

A) Price will increase, quantity will decrease.

B) Price will decrease, quantity will increase.

C) Price and quantity will both decrease.

D) Price will increase, quantity will remain unchanged.

Answer: A

Question 5: Corporate Finance – Capital Budgeting

Prompt:

A company is evaluating a project with the following cash flows: Year 0: -$100,000, Year 1: $40,000, Year 2: $50,000, Year 3: $60,000. The company’s required rate of return is 10%.

Question:

What is the project’s Net Present Value (NPV)?

A) $20,000

B) $25,000

C) $15,380

D) $30,000

Answer: C

Question 6: Financial Reporting – Balance Sheet

Prompt: A company has $150,000 in total assets, $90,000 in liabilities, and $60,000 in equity.

Question: According to the accounting equation, which of the following is correct?

A) Assets = Liabilities + Equity

B) Liabilities = Assets + Equity

C) Assets = Liabilities – Equity

D) Liabilities = Assets – Equity

Answer: A

Question 7: Corporate Finance – Cost of Capital

Prompt: A firm has a debt-to-equity ratio of 0.5, and its debt cost is 6%. If the cost of equity is 12%, what is the firm’s weighted average cost of capital (WACC) assuming no taxes?

Question: What is the firm’s WACC?

A) 8%

B) 9%

C) 10%

D) 11%

Answer: B

Question 8: Economics – Inflation

Prompt: The inflation rate in a country is reported as 4% for the year. The nominal interest rate is 6%.

Question: What is the real interest rate?

A) 10%

B) 2%

C) 5%

D) 0%

Answer: B

Question 9: Quantitative Methods – Probability

Prompt: A box contains 7 green marbles, 5 purple marbles, and 3 white marbles. If one marble is drawn at random, what is the probability that it is either green or purple?

Question: Which is the correct probability?

A) 0.6

B) 0.9

C) 0.8

D) 0.7

Answer: C

Question 10: Ethics – Duties to Clients

Prompt: A CFA® charterholder recommends a mutual fund to a client because it is a suitable investment, even though the fund charges higher fees than another suitable alternative.

Question: Has the CFA® charterholder violated any standards?

A) No, as long as the mutual fund is suitable for the client.

B) Yes, the CFA® charterholder should have recommended the lower-cost option.

C) No, as long as the fees are disclosed.

D) Yes, because mutual funds should not be recommended to clients.

Answer: A

CFA® Level 2 Questions

Question 1: Equity Valuation – Dividend Discount Model (DDM)

Prompt:

A stock is expected to pay a dividend of $3 next year, and dividends are expected to grow at 5% per year. If the required return is 10%, what is the intrinsic value of the stock using the Gordon Growth Model?

Question:

What is the stock’s intrinsic value?

A) $30

B) $60

C) $50

D) $100

Answer: B

Question 2: Ethics – Standards of Professional Conduct

Prompt:

A portfolio manager overhears a conversation at a restaurant where confidential information about a company’s upcoming earnings release is discussed.

Question:

Which action would comply with the CFA Institute Standards of Professional Conduct?

A) Trade based on the information.

B) Wait until the information is public and then trade.

C) Share the information with other clients immediately.

D) Refuse to act on the information until further investigation.

Answer: B

Question 3: Fixed Income – Bond Pricing

Prompt:

A 10-year bond with a face value of $1,000 pays a 6% annual coupon. The market rate of interest is 8%.

Question:

What is the price of the bond?

A) $850

B) $950

C) $1,000

D) $1,050

Answer: A

Question 4: Derivatives – Option Pricing

Prompt:

An investor buys a call option with a strike price of $50 on a stock that is currently trading at $48. The premium for the call is $2.

Question:

What is the intrinsic value of the call option?

A) $0

B) $2

C) $3

D) $5

Answer: A

Question 5: Portfolio Management – Capital Asset Pricing Model (CAPM)

Prompt:

A stock has a beta of 1.2, the risk-free rate is 3%, and the expected market return is 8%.

Question:

What is the expected return of the stock using the CAPM formula?

A) 9%

B) 10%

C) 12%

D) 15%

Answer: A

Question 6: Fixed Income – Duration

Prompt: A bond has a modified duration of 5 and the market interest rates increase by 1%.

Question: What will be the approximate percentage change in the price of the bond?

A) 1% increase

B) 5% decrease

C) 5% increase

D) 1% decrease

Answer: B

Question 7: Corporate Finance – Dividend Policy

Prompt: A company plans to distribute 60% of its earnings as dividends and retain the rest for reinvestment. The company’s return on equity (ROE) is 12%.

Question: What is the company’s sustainable growth rate?

A) 7.2%

B) 4.8%

C) 12%

D) 5.5%

Answer: A

Question 8: Equity Valuation – Price to Earnings Ratio (P/E)

Prompt: A company has earnings per share (EPS) of $5, and its stock is trading at $50 per share.

Question: What is the P/E ratio of the stock?

A) 5

B) 10

C) 15

D) 20

Answer: B

Question 9: Derivatives – Futures Contracts

Prompt: An investor enters into a futures contract to buy 100 barrels of oil at $70 per barrel. The price of oil rises to $75 per barrel.

Question: What is the gain or loss on the futures contract?

A) $5,000 gain

B) $500 gain

C) $5,000 loss

D) $500 loss

Answer: B

Question 10: Portfolio Management – Sharpe Ratio

Prompt: An investor’s portfolio has an expected return of 12%, a standard deviation of 10%, and a risk-free rate of 4%.

Question: What is the Sharpe ratio of the portfolio?

A) 0.8

B) 1.2

C) 1.5

D) 2.0

Answer: A

CFA® Level 3 Questions

Question 1: Behavioral Finance – Behavioral Bias

Prompt:

An investor refuses to sell a stock that has decreased in value because they do not want to realize a loss, even though the stock is unlikely to recover.

Question:

Which behavioral bias is this investor displaying?

A) Overconfidence

B) Loss aversion

C) Herding

D) Regret aversion

Answer: B

Question 2: Ethics – Scenarios

Prompt:

A CFA® charterholder’s firm manages an investment fund and also holds significant equity in one of the companies that the fund invests in.

Question:

Which course of action would comply with the CFA Institute Standards of Professional Conduct?

A) Recommend the company’s stock to clients without disclosure.

B) Disclose the conflict of interest to clients before making recommendations.

C) Trade the company’s stock in the firm’s proprietary account.

D) Refuse to acknowledge the conflict because of a lack of direct impact.

Answer: B

Question 3: Asset Allocation – Risk and Return

Prompt:

A client’s portfolio consists of 60% equity and 40% bonds. The expected return on equity is 10%, and the expected return on bonds is 5%.

Question:

What is the expected return on the portfolio?

A) 7%

B) 8%

C) 9%

D) 10%

Answer: B

Question 4: Fixed Income – Yield Curve Strategies

Prompt:

An investor believes that interest rates will decline and wants to take advantage of this by adjusting their bond portfolio.

Question:

Which yield curve strategy would be most appropriate?

A) Bullet strategy

B) Barbell strategy

C) Ladder strategy

D) Immunization strategy

Answer: A

Question 5: Equity Investments – Management Strategies

Prompt:

An investor prefers a strategy that attempts to outperform the market by selecting undervalued stocks.

Question:

Which investment management approach is the investor following?

A) Passive management

B) Active management

C) Indexing

D) Buy-and-hold

Answer: B

Question 6: Behavioral Finance – Behavioral Bias

Prompt: An investor consistently overestimates their ability to predict market movements and makes large, concentrated bets on individual stocks.

Question: Which behavioral bias is the investor exhibiting?

A) Overconfidence

B) Framing

C) Anchoring

D) Loss aversion

Answer: A

Question 7: Asset Allocation – Allocation Types

Prompt: An investor adjusts their portfolio based on a belief that the energy sector will outperform in the short term, even though the long-term target allocation remains unchanged.

Question: What type of asset allocation is this?

A) Strategic asset allocation

B) Tactical asset allocation

C) Core-satellite approach

D) Rebalancing

Answer: B

Question 8: Fixed Income – Interest Rate Sensitivity

Prompt: A bond portfolio manager is concerned about changes in interest rates and wants to minimize the risk of price fluctuations.

Question: Which characteristic of bonds should the manager focus on to assess sensitivity to large interest rate changes?

A) Duration

B) Convexity

C) Coupon rate

D) Maturity

Answer: B

Question 9: Risk Management – Portfolio Loss Estimation

Prompt: A portfolio manager calculates that there is a 5% chance the portfolio will lose more than $1 million over the next month.

Question: What concept is the manager using?

A) Standard deviation

B) Beta

C) Value at Risk (VaR)

D) Stress testing

Answer: C

Question 10: Portfolio Management – Asset Allocation and Inflation Protection

Prompt: An investor is concerned about inflation and wants to adjust their portfolio to include assets that typically perform well in an inflationary environment.

Question: Which asset class is most likely to provide inflation protection?

A) Fixed-rate bonds

B) Growth stocks

C) Commodities

D) High-yield bonds

Answer: C

How to Prepare for the CFA® Exam

If you’re ready to continue preparing for the CFA® exam, there are plenty of resources to help, from free sets of practice questions to paid study packages.

I’ve written a lot of articles on the best CFA® prep courses for Level 1, Level 2, and Level 3, because I believe they’re the best way for candidates to pass on their first attempt. With resources like mock exams that closely simulate the actual CFA® exam, thousands of additional practice questions, detailed answer explanations, a comprehensive curriculum to build your knowledge, and so much more, they’re a great investment for your future career (particularly when retaking exams could cost you an additional purchase of $1,000+).

Test-Taking Strategies for the CFA® Program

Create an Effective Study Plan

The CFA Institute recommends dedicating at least 300 hours of study for each exam level. Start early and pace yourself to avoid burnout. Discover your learning style—whether it’s visual, auditory, or through practice problems—and stick to a structured plan.

Tips:

• Break study sessions into daily or weekly goals.
• Use CFA Institute’s curriculum as your primary resource.
• Incorporate review days to reinforce previous material.

Master Key Test-Taking Techniques

In CFA® Level II’s vignette-supported multiple-choice sections, reading the questions before the vignette can help you focus on relevant details. This technique saves time and makes it easier to locate the information needed to answer the questions.

Tips:

• Read MCQs first, then go back to the vignette.
• Highlight key points in the vignette to match the MCQs.
• Practice time management—spend more time on harder questions but don’t linger too long.

Focus on Topic Weightings

Some topics carry more weight in the exam than others. For example, about 20% of CFA® Level I questions focus on ethics and professional conduct. To maximize your score, concentrate on heavily weighted areas, especially if they aren’t your strongest subjects.

Tips:

• Prioritize study time for high-weight topics like ethics.
• Create a study plan based on topic weight distribution.
• Test yourself regularly on these core areas to track improvement.

Be Efficient with Essay Responses

CFA® Level III’s essay questions are scored based on content, not style. Use concise answers—bullet points or short paragraphs are perfectly fine. Show all your work in math-based questions, and pay special attention to bolded “command words” like “calculate” or “explain” to ensure you’re responding appropriately.

Tips:

• Write concise, focused responses—length doesn’t equal points.
• Use bullet points for clarity, especially in complex questions.
• Answer exactly what the command words ask—nothing more, nothing less.

What to Do When You’re Stuck

If you’re stuck on a question, the common advice is to skip it and return later. However, it’s easy to forget or run out of time. If you must skip, make an educated guess before moving on to ensure you don’t miss out on potential points.

Tips:

• Make a guess before moving on to ensure you have a shot at earning the point.
• Flag the question to remind yourself to come back to it.
• Practice dealing with tough questions in mock exams to build confidence.

Prioritize Your Weak Areas

It’s tempting to focus on subjects you excel in, but the real gains come from strengthening your weaknesses. Spend extra time on the topics you find challenging, as improving in these areas will likely yield the greatest score increases.

Tips:

• Identify weak areas through practice exams and mock tests.
• Focus on one weak topic at a time until you see progress.
• Use a variety of study resources (videos, books, study groups) for tougher subjects.

Conclusion

Becoming a CFA® is a monumental accomplishment in the career trajectory of a finance student. And, like all things worth working for, it’s going to be difficult. That monumental accomplishment will require a monumental amount of work.

In the end, however, it will be well worth your time. Follow study and test-taking best practices, invest in yourself, and believe in your own abilities.

Showing up here (and reading this far!) means you’re already well on your way to exam day success. Best of luck!

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