Free CFA Level I Portfolio Management Practice Questions
Portfolio management on the CFA Level I exam covers modern portfolio theory, the capital asset pricing model (CAPM), risk and return measurement, and the investment policy statement. Weighted 5-8% (CFA Institute).
159 questions54 easy79 medium26 hard2026 syllabus
Sample Questions
Question 1
Easy
Risk budgeting is best described as the process of:
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Correct Answer: A
Solution
A is correct. Risk budgeting takes the aggregate risk tolerance set through risk governance and divides it into allocations, so that each asset class, strategy, or manager is granted a defined share of total risk. It makes the risk allocation explicit and comparable, which lets the organization judge whether each unit of risk granted is being deployed where it is expected to earn the most return.
Question 2
Medium
The Treynor ratio is best described as the:
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Correct Answer: C
Solution
C is correct. The Treynor ratio is defined as (Rp−Rf)/βp, measuring the excess return earned per unit of systematic (market) risk. Because the denominator is beta rather than total risk, the Treynor ratio is most appropriate for evaluating well-diversified portfolios where unsystematic risk has been eliminated.
Question 3
Hard
Value at Risk (VaR) is best described as:
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Correct Answer: B
Solution
B is correct.
VaR represents the minimum loss that would be exceeded with a specified probability (e.g., 5%) over a given time horizon. For example, a 1-day 5% VaR of 1 million means there is a 5% chance the portfolio will lose at least 1 million in one day.
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