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Q1: Ethical and Professional Standards – Material Nonpublic Information
Which of the following scenarios most accurately describes a violation of the CFA Institute Code of Ethics and Standards of Professional Conduct concerning material nonpublic information?
A) An investment analyst overhears a CEO discussing a potential merger at an airport lounge and subsequently purchases shares of the target company for personal gain.
B) A portfolio manager receives a confidential email from a client mentioning an upcoming change in investment strategy and adjusts the client's portfolio accordingly.
C) A financial analyst uses proprietary data modeling techniques to predict a company's earnings, leading to substantial returns for clients before the earnings report is officially published.
Q2: Performance Evaluation – Return Attribution and Benchmark Analysis
In the Brinson-Hood-Beebower (BHB) model, which of the following attributions provides the most direct measure of a portfolio manager’s ability to pick superior stocks?
A) Selection effect, which isolates the impact of security selection within sectors.
B) Allocation effect, which measures the impact of the manager’s weighting decisions relative to the benchmark.
C) Interaction effect, which captures the combined effect of allocation and selection decisions.
Q3: Risk Measurement – Value at Risk (VaR)
Which of the following is not a primary limitation of the parametric (analytical) Value at Risk (VaR) method?
A) It assumes normal distribution of returns, which may not always hold in real markets.
B) It does not capture tail risks effectively and fails to consider extreme market events.
C) It cannot be used for multi-asset portfolios, making it unsuitable for diversified investment strategies.
Q4: Performance Presentation – Ethical Concerns
Which of the following performance reporting practices would most likely violate ethical guidelines for investment performance presentation?
A) Using gross-of-fees returns in performance reports when communicating with retail investors who primarily see net-of-fees performance in their statements.
B) Presenting backtested performance results as part of an investment strategy without proper disclosures regarding data mining risks.
C) Using a customized benchmark rather than a widely recognized market index to reflect the portfolio's unique characteristics.
Q5: Fixed-Income Attribution Models CIPM Level 1 Exam Sample Questions , CIPM Level 1 , CIPM 2025
Which of the following elements is least relevant when conducting return attribution for a fixed-income portfolio compared to an equity portfolio?
A) Yield curve positioning, which assesses the impact of interest rate movements on bond performance.
B) Sector allocation, which evaluates the impact of investing in different industries or economic sectors.
C) Spread duration, which measures a bond's sensitivity to changes in credit spreads rather than interest rate movements.
Q6: Data Integrity – Sources of Errors in Performance Measurement
Which of the following is most likely to cause a significant data error in the calculation of investment performance metrics? CIPM Level 1 Exam Sample Questions , CIPM Level 1 , CIPM 2025
A) Using end-of-day pricing data for all assets, regardless of liquidity, to maintain reporting consistency.
B) Miscalculating accrued interest on a fixed-income portfolio due to incorrect coupon payment schedules.
C) Failing to incorporate derivatives pricing models in the performance measurement of portfolios that hold futures contracts.
Q7: Portfolio Construction – Hedging Strategies
Which of the following best describes a risk associated with an improperly executed currency hedge in an
international investment portfolio?
A) The portfolio may experience negative convexity, leading to unexpected losses if interest rate changes occur.
B) The hedge may lead to an over-hedged or under-hedged position, creating a mismatch between the portfolio’s actual currency exposure and its intended exposure.
C) Hedging reduces systematic risk, eliminating the need for any additional risk-adjusted performance evaluation.
Q8: Performance Measurement – Time-Weighted vs. Money-Weighted Returns
A portfolio manager has the following cash flows and portfolio values:
Initia
o ends at $1,700,000.
Which return is higher, the money-weighted return (MWRR) or time-weighted return (TWRR), and why?
A) MWRR is higher because the additional contribution was made before a period of strong performance.
B) TWRR is higher because it removes the effect of external cash flows.
C) Both MWRR and TWRR are equal since they both measure the portfolio's compounded growth rate over time.
Q9: Risk Measurement – Beta Calculation
A stock has the following annual return data relative to the market:
Stock return variance: 0.064
Market return variance: 0.040
Stock and market covariance: 0.032
What is the beta of the stock?
A) 0.80
B) 1.20
C) 1.60
Q10: Return Attribution – Geometric Excess Return
A portfolio earns 12% while its benchmark earns 8%. Calculate the geometric excess return.
A) 3.70%
B) 3.85%
C) 4.00%
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