Derivatives on the CFA Level I exam cover forward contracts, futures, options, and swaps, from basic payoff structures to introductory pricing and hedging strategies. Weighted 5-8% (CFA Institute).
107 questions10 easy64 medium33 hard2026 syllabus
Sample Questions
Question 1
Easy
Which of the following best describes a derivative security?
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Correct Answer: C
Solution
C is correct.
A derivative is a financial instrument whose value depends on (is derived from) the value of an underlying asset, rate, or index.
Question 2
Medium
Which of the following is a forward commitment rather than a contingent claim?
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Correct Answer: C
Solution
C is correct.
An interest rate swap is a forward commitment: both parties are obligated to make payments according to the agreed schedule. Neither party has the right to walk away.
Question 3
Hard
In a one-period binomial model, which of the following describes the risk-neutral pricing approach?
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Correct Answer: A
Solution
A is correct.
Risk-neutral pricing sets the up and down probabilities so that the expected return on the stock equals the risk-free rate, not the actual required return. This allows the option to be priced by discounting expected payoffs at the risk-free rate.
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