CFA Level I Practice Test

CFA Level I Equities Practice Questions

Equities makes up 6 of every 50 questions on a Tigertest CFA Level I practice test. Here are 10 of the 24 questions on it, each with the answer and the reason.

Updated 2026-11-10 by the Tigertest team. Based on CFA Institute's Level I topic weights for 2027. Original questions with four choices (the real exam has three). Not affiliated with CFA Institute.

1. 1. An investor wants to buy a stock immediately at the best available price. She should place a:

   • A.Good-till-cancelled limit order
   • B.Market order
   • C.Limit order
   • D.Stop order

   Answer: B. A market order executes at once at the best price available, trading price certainty for speed. A limit order guarantees the price but not execution.

2. 2. An investor buys shares at 50 with 40% initial margin. The maintenance margin is 25%. Ignoring interest and dividends, a margin call occurs if the price falls below:

   • A.30.00
   • B.33.33
   • C.37.50
   • D.40.00

   Answer: D. The loan is 60% of 50 = 30 per share. A call comes when (P - 30) / P = 0.25, so P = 30 / 0.75 = 40.00. 37.50 applies 25% to the purchase price instead.

3. 3. An investor buys a stock at 40 using 50% margin and sells it at 46. Ignoring interest, fees and dividends, her return on equity invested is:

   • A.30%
   • B.60%
   • C.15%
   • D.12%

   Answer: A. The price gain of 6 is 15% of 40, but she put up only 20 of her own money, so her return is 6 / 20 = 30%. Leverage doubles the 15% unlevered return.

4. 4. In a price-weighted index, the same percentage price change has the greatest effect on the index value when it happens to:

   • A.The most heavily traded stock
   • B.The lowest-priced stock
   • C.The highest-priced stock
   • D.The largest company by value

   Answer: C. A price-weighted index sums share prices and divides by a divisor, so a 1% move in a high-priced share moves the index most, whatever the company's size.

5. 5. A price-weighted index holds three stocks priced at 20, 50 and 80, with a divisor of 3. If the 80 stock rises to 88, the index becomes closest to:

   • A.52.00
   • B.55.00
   • C.52.67
   • D.53.33

   Answer: C. The index moves from (20 + 50 + 80) / 3 = 50.00 to (20 + 50 + 88) / 3 = 158 / 3 = 52.67. Each 1-point price change moves this index by a third of a point.

6. 6. Compared with a market-capitalization-weighted index, an equal-weighted index tends to:

   • A.Overweight small companies
   • B.Need no rebalancing
   • C.Have lower turnover
   • D.Overweight large companies

   Answer: A. Equal weighting gives the smallest company as much weight as the largest, tilting the index toward small caps. It must also be rebalanced often as prices move.

7. 7. If markets are semi-strong form efficient but not strong form efficient, which approach could still earn abnormal returns?

   • A.Screening stocks on published P/E ratios
   • B.Analysis of public financial statements
   • C.Technical analysis of past prices
   • D.Trading on material inside information

   Answer: D. Semi-strong efficiency means prices already reflect all public information, including past prices and published statements, so none of those can reliably beat the market. Only private information is not yet in prices; strong-form efficiency would rule that out too, and trading on it is illegal in most markets.

8. 8. Small-company stocks have historically tended to earn higher returns in the first weeks of the year. This anomaly is called the:

   • A.Weekend effect
   • B.January effect
   • C.Momentum effect
   • D.Value effect

   Answer: B. The January effect is often linked to tax-loss selling in December and window dressing. Many calendar anomalies have weakened once widely known.

9. 9. Investors who hold losing stocks too long hoping to break even, while selling winners quickly, show the:

   • A.Momentum effect
   • B.Disposition effect
   • C.Herding behavior
   • D.Home country bias

   Answer: B. The disposition effect, rooted in loss aversion, makes investors reluctant to realize losses and quick to lock in gains.

10. 10. A company skips a year's dividend on its cumulative preferred shares. Before common shareholders can receive a dividend:

    • A.Preferred holders gain votes only
    • B.Preferred shares become common
    • C.The skipped dividend is forfeited
    • D.The missed amount must be paid

    Answer: D. Unpaid dividends on cumulative preferred shares accumulate in arrears and must be paid in full before any common dividend. Non-cumulative preferred holders lose a skipped dividend.