Free CFA Level I Practice Exam

What’s on the CFA Level I

• Ethical and Professional Standards15-20%

  • Ethics and Trust in the Investment Profession

    Covers why codified ethics matter for a profession, how trust is built between investment practitioners and clients, and a general framework for working through ethical dilemmas.

  • Code of Ethics and Standards of Professional Conduct

    Introduces the six components of the CFA Institute Code of Ethics and the seven Standards of Professional Conduct, along with how the Professional Conduct Program investigates and enforces violations.

  • Guidance for Standards I-VII

    Applies each Standard to realistic practitioner scenarios so candidates can distinguish compliant conduct from violations and recommend firm policies that prevent breaches.

  • Introduction to the Global Investment Performance Standards (GIPS)

    Explains why GIPS exists, who can claim compliance, how composites are built for performance reporting, and what independent verification of a firm's claim involves.

• Quantitative Methods6-9%

  • Rates and Returns

    Covers how to interpret interest rates as compensation for risk and time, and how to compute and compare money-weighted versus time-weighted portfolio returns.

  • Statistical Measures of Asset Returns

    Builds fluency with central tendency, dispersion, skewness, and kurtosis so a candidate can characterize a return distribution's shape and risk.

  • Hypothesis Testing

    Walks through setting up a hypothesis test, evaluating statistical significance, and understanding Type I/Type II errors and test power in an investment context.

  • Simple Linear Regression

    Covers estimating a regression line via least squares, checking model assumptions through residual analysis, and interpreting fit statistics like R-squared.

• Economics6-9%

  • The Firm and Market Structures

    Compares how firms set price and output under perfect competition, monopolistic competition, oligopoly, and monopoly, and how to identify which structure a firm operates in.

  • Understanding Business Cycles

    Describes the phases of the business and credit cycle and how indicators like housing, trade, and consumer activity move across them.

  • Monetary and Fiscal Policy

    Contrasts the tools and objectives of central banks versus government fiscal policy, and how the two interact to influence growth, inflation, and exchange rates.

  • Capital Flows and the FX Market

    Explains how the foreign exchange market functions, how exchange rate regimes affect trade and capital flows, and how to compute currency cross-rates and forward premiums/discounts.

• Financial Statement Analysis11-14%

  • Analyzing Income Statements

    Covers revenue and expense recognition principles, how accounting choices distort comparability, and calculating basic and diluted EPS.

  • Analyzing Balance Sheets and Cash Flow Statements

    Covers reporting for intangibles, goodwill, and financial instruments on the balance sheet, plus how to derive and interpret direct/indirect cash flow statements and free cash flow measures.

  • Financial Reporting Quality

    Teaches a framework for judging how aggressive or conservative a company's reporting is, and how to spot warning signs of earnings or balance-sheet manipulation.

  • Financial Analysis Techniques

    Applies ratio analysis (liquidity, solvency, profitability) and DuPont decomposition to evaluate and forecast a company's financial performance.

• Corporate Issuers6-9%

  • Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits

    Examines principal-agent conflicts among management, shareholders, and other stakeholders, and the governance mechanisms firms use to manage them.

  • Capital Investments and Capital Allocation

    Covers evaluating capital projects with NPV, IRR, and ROIC, along with common pitfalls and the value of embedded real options in investment decisions.

  • Capital Structure

    Explains what drives a company's financing mix, the Modigliani-Miller propositions, and how to estimate a company's weighted-average cost of capital.

  • Working Capital and Liquidity

    Covers the cash conversion cycle and the methods companies use to manage short-term liquidity needs.

• Equity Investments11-14%

  • Market Organization and Structure

    Covers how securities and orders move through primary and secondary markets, margin trading mechanics, and the purpose of market regulation.

  • Market Efficiency

    Contrasts weak-, semi-strong-, and strong-form efficiency and discusses anomalies and behavioral finance as challenges to the efficient markets view.

  • Industry and Competitive Analysis

    Applies frameworks like Porter's Five Forces to size an industry, group comparable companies, and assess a firm's competitive position.

  • Equity Valuation: Concepts and Basic Tools

    Covers dividend discount models and price-multiple approaches (P/E, P/S, P/B, enterprise-value multiples) for judging whether a stock is fairly valued.

• Fixed Income11-14%

  • Fixed-Income Bond Valuation: Prices and Yields

    Covers pricing a bond from its yield-to-maturity and the relationships among a bond's price, coupon, maturity, and yield.

  • Yield-Based Duration and Convexity

    Covers modified duration, money duration, and convexity as tools for estimating how a bond's price reacts to yield changes, including portfolio-level measures.

  • Credit Risk and Credit Analysis

    Explains probability of default and loss given default, how rating agencies assess creditworthiness, and the qualitative/quantitative factors used in analyzing corporate and government issuers.

  • Fixed-Income Securitization (ABS/MBS)

    Covers how loans are pooled and tranched into asset-backed and mortgage-backed securities, along with prepayment risk and the cash-flow/risk profile of each structure type.

• Derivatives5-8%

  • Forward Commitment and Contingent Claim Features

    Defines forwards, futures, swaps, and options, and contrasts the payoff profile of a forward commitment against a contingent claim like an option.

  • Arbitrage, Replication, and Cost of Carry

    Explains how no-arbitrage pricing and replication logic underlie derivative valuation, including the relationship between spot price, expected future price, and carry costs.

  • Pricing and Valuation of Forwards, Futures, and Swaps

    Covers how forward and futures prices are determined and why they can diverge, plus how swap contracts can be viewed as a series of forward agreements.

  • Pricing and Valuation of Options

    Covers the drivers of option value, put-call parity, and using a one-period binomial model to value a derivative under risk-neutral pricing.

• Alternative Investments7-10%

  • Alternative Investment Features, Methods, and Structures

    Categorizes the alternative asset universe and compares direct, co-investment, and fund-based access methods along with typical ownership/compensation structures.

  • Investments in Private Capital: Equity and Debt

    Covers the investment characteristics of private equity and private debt and the diversification benefits they can add to a portfolio.

  • Hedge Funds

    Contrasts hedge fund structures and strategies with traditional asset classes and examines their risk, return, and diversification profile.

  • Introduction to Digital Assets

    Covers the basics of distributed ledger technology and how digital assets differ from traditional asset classes in risk, return, and portfolio role.

• Portfolio Management8-12%

  • Portfolio Risk and Return (Parts I & II)

    Builds the mean-variance framework, the capital allocation and capital market lines, and shows how combining a risk-free asset with a risky portfolio shapes the efficient frontier and beta.

  • Basics of Portfolio Planning and Construction

    Covers writing an investment policy statement, setting risk/return objectives, and translating client constraints (liquidity, horizon, taxes, ESG preferences) into an asset allocation.

  • The Behavioral Biases of Individuals

    Distinguishes cognitive errors from emotional biases and discusses how investor behavior can produce market patterns that classical theory doesn't fully explain.

  • Introduction to Risk Management

    Introduces a risk governance framework, financial and non-financial risk sources, and the tradeoffs among methods for measuring and modifying risk exposure.