Practice questions provided by PrepNuggets are intended as a supplementary resource and should be used after mastering the comprehensive ones provided by the CFA Institute (accessible under candidate resources, or at the end of each reading in the curriculum textbook). While PrepNuggets’ questions test topic understanding, they may not mirror the exam’s exact question types. Prioritise the CFA Institute’s questions for optimal exam preparation.
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“It’s not going to be easy, but it’s going to be worth it.”
Consider the following annual returns for three different investment portfolios:
Portfolio  Return (%) 

A  20 
B  17 
C  22 
If a new portfolio, D, was introduced with a return of 18%, what would be the median return among the four portfolios?
A researcher found that the returns of a certain security followed a bimodal distribution. Which of the following is the most likely reason for this observation?
Zoe is working on a dataset containing the annual incomes of 100 individuals. After calculating the mean, she discovers some extreme values at both ends. She decides to calculate a 2% trimmed mean. How many observations will she exclude from each end to calculate this trimmed mean?
Which of the following best describes a winsorized mean?
In a box and whisker plot, if the largest observation is significantly farther from the box than the smallest observation, it suggests:
A box and whisker plot for a set of data shows the median significantly closer to the third quartile than the first quartile. This indicates:
Which measure can be used to describe the spread of the middle 50% of data?
Given a dataset, if one is interested in understanding the variability and spread of the middle portion of data without being affected by extreme values, they should consider:
In the context of a box and whisker plot, if the ‘box’ represents a smaller portion of the vertical line, this indicates:
A hedge fund manager believes that assets with a higher MAD are riskier. She has computed the MAD for two assets and obtained values of 4.5% for Asset X and 5.5% for Asset Y. Based on MAD alone, which asset is riskier?
An investment advisor wants to present the riskreturn profile of two assets to his client. He observes that while both assets have similar MAD values, Asset A has a higher mean return. How should the advisor interpret this?
Which of the following statements is TRUE concerning the properties and interpretation of sample variance?
What is the primary reason for using n1 as the denominator in the sample variance formula instead of n?
An investment’s mean monthly return is 1.2% with a standard deviation of 0.5%. If another investment has a mean return of 1.5% and a standard deviation of 0.6%, which investment has less risk per unit of monthly return?
Which of the following statements best describes the concept of target downside deviation?
Given the increasing importance of downside risk in investment management, an investment advisor suggests using target semideviation as the preferred metric. Which scenario would justify this recommendation?
Robert is analyzing a data set of housing prices in London over the past year. He noticed that a few homes sold for significantly higher prices than the majority. Which of the following descriptions would best describe this distribution of housing prices?
A professor provided her students with a set of data and found that the sample skewness of the data was 2.5. What can be inferred about the distribution of the data?
Sarah is analysing the distribution of yearly incomes in a specific town. She notices that the mean income is $75,000, while the mode is at $55,000. What can Sarah infer about the skewness of the income distribution?
A hedge fund manager is analysing the return distribution of his portfolio. He finds that the return distribution is platykurtic. Which of the following best describes the implication for risk management?
Based on a large sample size, an analyst calculates the sample kurtosis of a distribution as 4.2. What is the excess kurtosis for this distribution?
A financial analyst is trying to compare the risk of two assets using their return distributions. Asset A has an excess kurtosis of 3 while Asset B has an excess kurtosis of 2. Which statement regarding the risk associated with the assets is most accurate?
When studying relationships between two variables, why might it be misleading to rely solely on correlation coefficients?
Considering two stocks, M and N, with respective variances of 0.004 and 0.006. If their covariance is negative, which of the following statements is most likely true?
Assuming you are given the following data for two stocks, Stock W and Stock Z:
Which of the following is the correlation coefficient between the returns of Stock W and Stock Z?
Given that two random variables, J and K, have a correlation of 0. If the variance of J increases, what happens to the covariance of J and K?
Using the concept of spurious correlation, which of the following statements is most accurate?
Why is the language of the Learning Outcome Statements (LOS) different from the curriculum?
The LOS are protected under the CFA Institute's copyright, and we don't have permission to duplicate them verbatim. Therefore, we've rephrased the LOS and included alphabetical labels (a, b, c, …) to simplify crossreferencing with the original LOS in the curriculum when needed.
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Have you ever gotten stuck in your study because you can’t remember a formula, or what a specific term means? Now, say goodbye to scanning through all the videos and ploughing through pages and pages just to find what you are looking for. All the important formulas, definitions and diagrams you need for the exam are now at your fingertips at prepnuggets.com/glossary.
What’s more, these quick references are deeply integrated in our lessons, so you get a good idea of what the lesson covers even before watching the video. The references also point you to specific video lessons where it is covered, so you can quickly access the corresponding video to learn more about the term.
Available now for all Level I topics, this service is exclusive for our Premium and Pro members only. We will progressively add the rest of the topic areas over the next few months.
We think this is a gamechanger for your CFA success!
Are you a CFA Level I candidate, or someone who is exploring taking the CFA exam? Four years ago, I was in your shoes. I am a Computer Engineering graduate and have been working as an engineer all my life. Having developed a keen interest in finance, I decided on a career switch to the finance field and enrolled into the CFA program at the same time.
Adjusting to the drastic career change was tough. I naturally neglected the preparation for my Level I exam in June 2014. It was not until the middle of March 2014 that I realized I only had a little more than 2 months to the exam. To compound my problems, I basically did not have a preparation strategy. Having no background in finance at all, I tried very hard to read the curriculum from cover to cover, but eventually that fell flat. I can still recall the number of times I dozed off while studying, or just going back and forth trying to understand even the simplest concept. My mind simply could not keep up after a hard day at work.
Does all these sound familiar to you? Well, take heart. No matter how bleak it seems, at least sit for the exam and treat it as a learning experience. That was basically my attitude as I burrowed through my exam prep with toil and stress. By God’s grace, I did pass my Level I exam in June 2014. It was an experience I would not want to revisit though.
For the Level II exam, I endeavoured not to repeat the mistakes I made. Based on the Pareto 80/20 principle, I learnt to extract the most essential bits from the curriculum enough to give me that 80% result to pass. Being a visual learner, I took notes and summaries in pictorial form. Instead of reserving huge segments of time to study, I carved out pockets of time to learn and practise – accommodating to my fulltime job. I managed to pass my Level II and Level III exams consecutively with considerably less effort and stress than when I did my level I.
I love the CFA Program and truly value the skills and ethics that are imparted to make me a better finance professional. My desire is to help candidates who are keen to pursue this path to do so in the most effective and painless process as possible – based on the lessons that I learnt as a candidate. I have set up PrepNuggets with the vision to revolutionise learning by using technology, catering to the short attention span that we can afford. If this makes sense to you, join the PrepNuggets community by signing up for your free student account. I am confident that the materials that we have laboriously crafted will bring you closer to that dream pass with just that 20% effort. Let us do the hard work for you.
Regards,
Keith Tan, CFA
Founder and Chief Instructor
PrepNuggets
Keith is the founder and chief instructor of PrepNuggets. He has a wide range of interests in all things related to tech, from web development to elearning, gadgets to apps. Keith loves exploring different cultures and the untouched gems around the world. He currently lives in Singapore but frequently travels to share his knowledge and expertise with others.