CFA Level II Practice Test 2026-2027 and Free Sample Questions

When valuing a firm using free cash flow to the firm (FCFF), which discount rate should be applied?

An option-free bond is trading at a premium to par. Which of the following relationships is correct?

A bond has an effective duration of 6.5 and an effective convexity of 80. If interest rates rise by 100 basis points, what is the estimated percentage change in the bond's price?

Under the cost-of-carry model, the no-arbitrage forward price of an asset that pays no income increases with which of the following?

In the binomial option pricing model, the risk-neutral probability of an upward move is used to value an option because it allows the analyst to:

An investor company owns 30 percent of an investee and exercises significant influence but not control. Which accounting method should the investor generally use?

In a business combination accounted for under the acquisition method, goodwill is measured as:

A firm has a target capital structure of 40 percent debt and 60 percent equity. Its before-tax cost of debt is 7 percent, its cost of equity is 12 percent, and the marginal tax rate is 25 percent. What is the firm's weighted average cost of capital?

When evaluating two mutually exclusive projects of unequal size, the net present value rule and the internal rate of return rule may conflict. In such a conflict, which decision criterion is generally preferred?

An analyst is comparing two firms in the same industry using the trailing price-to-earnings ratio. One firm reported a large nonrecurring gain in the most recent year. To make the comparison more meaningful, the analyst should:

A widening of a corporate bond's credit spread relative to a benchmark government bond of the same maturity most likely indicates:

For a defined benefit pension plan, an increase in the discount rate used to value the obligation will generally:

In the residual income model, residual income for a period is best defined as:

At initiation of a plain vanilla interest rate swap, the fixed rate is set so that the value of the swap to both counterparties is:

Using DuPont analysis, return on equity is decomposed into net profit margin, total asset turnover, and:

In Porter's five forces framework, a high threat of new entrants into an industry generally:

A company has 1,000,000 shares outstanding trading at 20 dollars per share. It uses 2,000,000 dollars to repurchase shares in the open market at the current price. Assuming no other changes, what is the effect on the remaining shareholders' wealth per share?

Under the pure (unbiased) expectations theory of the term structure, a long-term interest rate is best interpreted as:

An analyst notices that a company's net income is growing steadily while its cash flow from operations is stagnant or declining over several years. This divergence is most likely a signal of: