CFA Level I Equity practice questions
25 exam-style questions from across Equities, which is 11–14% of the Level I exam (roughly 20–25 of the 180 questions). Pick an answer to see whether you were right, why each option is right or wrong, and the lesson to go back to.
Module 1 Equity Instrument Features
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1A company's 7% cumulative preference shares have a par value of EUR 50. No preference dividend was paid in the past two years. Before paying a common dividend this year, the company must pay each preference share:
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The answer is C.
A. Only this year's dividend, 0.07 × 50. That treats the shares as non-cumulative. The trap
B. Only the two years of arrears, 2 × 3.50. This year's dividend is also due.
C. Two years of arrears plus this year: 3 × 0.07 × 50 = 10.50.
On your calculator- 3×0.07×50= 10.5
- 3ENTER0.07×50× 10.5
ENTER enter (on the HP, puts the number on the stack)
From the lesson Common shares and preference shares
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2Compared with preference shares and debt issued by the same company, common shares most likely have:
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The answer is B.
A. No equity carries a contractual payment obligation. Only debt does.
B. Common holders are residual claimants, paid after debt and preference shares, so their payoffs are the least certain.
C. Common shares have no maturity: they stay outstanding until a restructuring or liquidation. The trap
From the lesson Common shares and preference shares
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3A listed biotech company that urgently needs capital sells new shares at a discount to three institutional investors without a public offering. This is best described as a:
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The answer is B.
A. A leveraged buyout takes a company private with borrowed money. Nothing here changes the company's listing.
B. The issuer is public and the sale is private, at a discount: a PIPE.
C. Venture capital funds unlisted, early-stage companies. This issuer is already listed. The trap
From the lesson Public vs private equity: venture capital, buyouts and PIPEs
Module 2 Equity Jurisdictions, Classes, and Voting
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4A company has 400 million Class A shares with one vote each and 50 million Class B shares with ten votes each. Both classes have equal rights to dividends. The founder owns 30 million Class B shares and no Class A shares. The founder's share of the total votes is closest to:
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The answer is B.
A. The founder's share of all shares, 30 ÷ 450. That is the economic stake, not the votes. The trap
B. Votes held are 30 × 10 = 300 million. Total votes are 400 + 50 × 10 = 900 million. 300 ÷ 900 = 33.33%.
C. The founder's share of Class B only, 30 ÷ 50. Class A votes count in the total.
On your calculator- 50×10+400=STO1
- 30×10÷RCL1= 0.3333
STO store · RCL recall a stored number
- 30ENTER10×50ENTER10×400+÷ 0.3333
ENTER enter (on the HP, puts the number on the stack)
From the lesson Share classes and voting rights: dual class structures and differential voting shares
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5Which depositary receipt most likely gives its holders voting rights?
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The answer is A.
A. The foreign company is involved, and the holders have the rights of direct owners, including the vote.
B. In an unsponsored receipt the depository bank keeps the votes. The trap
C. Still unsponsored, so the depository bank keeps the votes. Where you buy it does not change that.
From the lesson Investing across jurisdictions: dual listings and depositary receipts
Module 3 Equity Issuance and Trading
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6Laurent Biotech has 80 million shares outstanding. It completes a follow-on offering of 20 million shares: 8 million newly issued shares and 12 million shares sold by its founders. An investor who held 4 million shares before the offering and bought none in it now owns closest to:
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The answer is B.
A. 4 ÷ 100 treats all 20 million shares as new. The founders' 12 million shares already existed. The trap
B. 4 ÷ (80 + 8) = 4 ÷ 88 = 4.55%. Only the newly issued shares dilute.
C. 4 ÷ 80 ignores the 8 million new shares.
On your calculator- 4÷(80+8)= 0.0455
- 4ENTER80ENTER8+÷ 0.0455
ENTER enter (on the HP, puts the number on the stack)
From the lesson Primary and secondary equity markets: issuing shares and why trading matters
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7The lowest ask prices for a share are 500 shares at 15.20, 800 shares at 15.25 and 1,000 shares at 15.30. The highest bid is 15.10. A market order to buy 1,000 shares pays an average price that exceeds the mid-market price by closest to:
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The answer is B.
A. 15.20 − 15.15 assumes every share fills at the lowest ask. Only 500 shares are offered there. The trap
B. Mid = (15.20 + 15.10) ÷ 2 = 15.15. Average = (500 × 15.20 + 500 × 15.25) ÷ 1,000 = 15.225. 15.225 − 15.15 = 0.075.
C. 15.225 − 15.10 measures from the highest bid instead of the mid-market price.
On your calculator- 15.2+15.1=÷2= 15.15
- (500×15.2)+(500×15.25)=÷1000= 15.225
- −15.15= 0.075
- 15.2ENTER15.1+2÷ 15.15
- 500ENTER15.2×500ENTER15.25×+1000÷ 15.225
- 15.15− 0.075
ENTER enter (on the HP, puts the number on the stack)
From the lesson Where shares trade: exchanges, off-exchange and over the counter
Module 4 Sources of Equity Returns
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8An investor holds 600 shares priced at USD 45.00. The company pays a 10% stock dividend. Assuming nothing else changes, the share price after the dividend is closest to:
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The answer is B.
A. Cuts the price by 10% (45 × 0.90), but the investor now has 660 shares, not 600. The trap
B. Total value is 600 × 45.00 = 27,000. Divided over 660 shares it is 40.91, which equals 45.00 ÷ 1.10.
C. Ignores the new shares. Price would have to fall as the share count rises.
On your calculator- 45÷1.1= 40.9091
- 45ENTER1.1÷ 40.9091
ENTER enter (on the HP, puts the number on the stack)
From the lesson Dividends, share repurchases, stock splits and the dividend timetable
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9An investor buys a share at INR 1,200. One year later, immediately after a 5-for-1 stock split, the company pays a dividend of INR 6 per new share and the shares trade at INR 262. The one-year total return is closest to:
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The answer is B.
A. Divides the post-split dividend by 5 again: (262 − 240 + 1.20) ÷ 240. The trap
B. The adjusted purchase price is 1,200 ÷ 5 = 240. Then (262 − 240 + 6) ÷ 240 = 28 ÷ 240 = 11.67%.
C. Multiplies the dividend by 5 while using post-split prices: (262 − 240 + 30) ÷ 240.
On your calculator- 1200÷5= 240 adjusted purchase price
- 262−240+6=÷240= 0.1167
- 1200ENTER5÷ 240
- 262ENTER240−6+240÷ 0.1167
ENTER enter (on the HP, puts the number on the stack)
From the lesson Price return, total return and the price of a share
Module 5 Introduction to Equity Valuation
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10An analyst estimates a share's intrinsic value at USD 30.00. It trades at USD 33.60. The share is most likely:
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The answer is C.
A. Reverses the rule. Value below price means overvalued. The trap
B. Fairly valued needs the price to be about equal to value (P_t ≈ IV_t). A gap of more than 10% is large.
C. Value is below price: P_t > IV_t. (30.00 − 33.60) ÷ 33.60 = −10.71%.
On your calculator- 30−33.6=÷33.6= −0.1071
- 30ENTER33.6−33.6÷ −0.1071
ENTER enter (on the HP, puts the number on the stack)
From the lesson Market price, intrinsic value and perceived value
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11Kestrel Supplies trades at GBP 24.00 and has 10 million shares outstanding. Its net income for the past year was GBP 30 million, which includes a one-time gain of GBP 6 million on the sale of land. The trailing price-to-earnings (P/E) ratio an analyst should compare with peers is closest to:
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The answer is C.
A. Adds the gain again instead of removing it: 24.00 ÷ 3.60.
B. 24.00 ÷ 3.00 leaves the one-time gain in earnings. The trap
C. Correct. Earnings per share without the gain are (30 − 6) ÷ 10 = 2.40, and 24.00 ÷ 2.40 = 10.0. Non-recurring items are excluded so peers are compared on repeatable earnings.
On your calculator- 30−6=÷10= 2.40, adjusted earnings per share
- 24÷2.4= 10.0
- 30ENTER6−10÷ 2.40
- 24ENTER2.4÷ 10.0
ENTER enter (on the HP, puts the number on the stack)
From the lesson Equity valuation models: present value, asset-based and relative
Module 6 Discounted Cash Flow and Growth Models
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12An analyst expects dividends of EUR 1.50 and EUR 1.60 at the end of years 1 and 2 and a share price of EUR 40.00 at the end of year 2. The required return on equity is 8%. The share's intrinsic value today is closest to:
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The answer is A.
A. 1.50 ÷ 1.08 + (1.60 + 40.00) ÷ 1.08² = 1.389 + 35.665 = 37.05.
B. Discounts the year-2 price by one year only. The trap
C. Adds the cash flows without discounting: 1.50 + 1.60 + 40.00.
On your calculator- CF2NDCLR WORK
- 0ENTER↓1.5ENTER↓↓41.6ENTER
- NPV8ENTER↓CPT 37.0542
CF cash flow worksheet · 2ND second function (the shifted label above a key) · CLR WORK clear the worksheet · ENTER enter (on the HP, puts the number on the stack) · NPV net present value · CPT compute
- fCLEAR REG
- 0gCF01.5gCFj41.6gCFj8i
- fNPV 37.0542
f gold shift key · CLEAR REG clear all registers · g blue shift key · CF0 cash flow at time zero · CFj cash flow j · i interest rate per period · NPV net present value
From the lesson Dividend discount and free-cash-flow-to-equity models
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13A company reports cash flow from operations of JPY 4,800 million, interest expense of JPY 900 million and capital expenditures of JPY 2,100 million. Its tax rate is 30%. Its free cash flow to the firm is closest to:
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The answer is B.
A. Subtracts after-tax interest instead of adding it back: 4,800 − 630 − 2,100.
B. 4,800 + 900 × 0.70 − 2,100 = 4,800 + 630 − 2,100 = 3,330. After-tax interest is a cash flow to lenders, who share in FCFF.
C. Adds interest before tax: 4,800 + 900 − 2,100. Interest saves tax, so only 630 is added back. The trap
On your calculator- 900×0.7+4800−2100= 3,330
- 4800ENTER900ENTER0.7×+2100− 3,330
ENTER enter (on the HP, puts the number on the stack)
From the lesson Dividends, FCFE, FCFF or residual income: which cash flow, which discount rate
Module 7 Relative Valuation with Multiples
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14Comparable companies have a median trailing price-to-earnings (P/E) ratio of 14.0. A company in the same industry has trailing earnings per share (EPS) of USD 3.10. The value per share indicated by the method of comparables is closest to:
Show the answer
The answer is C.
A. Divides the multiple by EPS instead of multiplying: 14.0 ÷ 3.10. The trap
B. Adds the multiple and EPS.
C. Value = peer multiple × the company's own fundamental = 14.0 × 3.10 = 43.40.
On your calculator- 14×3.1= 43.4
- 14ENTER3.1× 43.4
ENTER enter (on the HP, puts the number on the stack)
From the lesson Valuing with multiples: comparables and forecasted fundamentals
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15A company pays out 45% of its earnings. Its cost of equity is 10% and its expected long-run growth rate is 6%. Its justified trailing price-to-earnings (P/E) ratio is closest to:
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The answer is C.
A. Divides the payout ratio by the cost of equity alone, ignoring growth.
B. 0.45 ÷ 0.04 = 11.25 is the justified forward P/E; the trailing form multiplies by (1 + g). The trap
C. 0.45 × 1.06 ÷ (0.10 − 0.06) = 11.93.
On your calculator- 0.45×1.06÷(0.1−0.06)= 11.93
- 0.45ENTER1.06×0.1ENTER0.06−÷ 11.93
ENTER enter (on the HP, puts the number on the stack)
From the lesson Price multiples: P/E, earnings yield, P/S, P/B and dividend yield
Module 8 Financial Statement Forecasting
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16An analyst expects a retailer's revenue to grow 4% a year, its rent and staff costs 2% a year, and its dividend payout ratio to rise from 30% to 50% over five years. A disaggregated model is most appropriate here because:
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The answer is A.
A. Different growth rates for revenue, costs and payout make the combined growth differ from each part. Only a component-by-component forecast captures that.
B. A disaggregated model still needs a terminal value at the end of the forecast.
C. More inputs add error, noise and updating. Accuracy is not guaranteed. The trap
From the lesson Why build a disaggregated model, and at what level of detail
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17An analyst forecasts that a company's operating assets will rise by GBP 55 million and its non-debt liabilities by GBP 12 million next year. Net income is forecast at GBP 38 million, and dividends at GBP 15 million. The company's financing needs are closest to:
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The answer is C.
A. Subtracts the dividend instead of adding it back (55 − 12 − 38 − 15).
B. Ignores the dividend, treating all net income as retained (55 − 12 − 38). The trap
C. Retained earnings rise 38 − 15 = 23, and 55 − 12 − 23 = 20, so money is required.
On your calculator- 55−12−38+15= 20
- 55ENTER12−38−15+ 20
ENTER enter (on the HP, puts the number on the stack)
From the lesson Asset and financing models
Module 9 Industry and Competitive Analysis
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18An industry has four firms with market shares of 40%, 30%, 20% and 10%. Its Herfindahl-Hirschman Index is closest to:
Show the answer
The answer is C.
A. Uses decimal shares: 0.16 + 0.09 + 0.04 + 0.01 = 0.30. The trap
B. Adds the shares instead of squaring them.
C. 40² + 30² + 20² + 10² = 1,600 + 900 + 400 + 100 = 3,000.
On your calculator- 40x²+30x²+20x²+10x²= 3000
x² square
- 40ENTER×30ENTER×+20ENTER×+10ENTER×+ 3000
ENTER enter (on the HP, puts the number on the stack)
From the lesson Industry size, growth, profitability and concentration
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19Customers of an enterprise software product need months of retraining and data migration to change provider. This most directly weakens the:
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The answer is B.
A. Supplier power concerns the industry's own inputs, not its customers' costs of leaving. The trap
B. Switching costs are one of the five sources of an economic moat: a newcomer cannot easily win customers away. They also reduce customers' bargaining power.
C. Regulation is not one of the five forces; it works through a force such as entry and is assessed in PESTLE.
From the lesson Porter's Five Forces and economic moats
Module 10 Company Analysis
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20A cement producer with the region's largest, most efficient kilns cuts prices to keep its plants full. Its strategy is best described as:
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The answer is A.
A. Scale gives it the lowest unit cost, so it can price aggressively for volume and still earn a margin.
B. Differentiation relies on a distinctive product and a premium price, not on price cuts. The trap
C. Nothing narrows the strategy to a particular customer group or niche.
From the lesson Competitive strategy: cost leadership, differentiation and focus
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21A Spanish maker of electric cargo bikes sells only cargo bikes and only in Spain. Bicycle sales in Europe total EUR 20 billion a year, cargo-bike sales in Spain EUR 300 million, and the company's one factory can make bikes worth EUR 45 million a year. The company's obtainable market is closest to:
Show the answer
The answer is A.
A. The obtainable market narrows the serviceable market by current scale: one factory's output.
B. EUR 300 million narrows the market by focus (cargo bikes) and geography (Spain): the serviceable market. The trap
C. EUR 20 billion is the largest possible market, the total addressable market.
From the lesson Company life cycle and the addressable market
Module 11 Equity Research Reports
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22A research report that includes a Porter's Five Forces analysis and a PESTLE (political, economic, social, technological, legal and environmental) analysis is most likely:
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The answer is A.
A. A report that initiates coverage introduces the company, so it includes a thorough analysis of its industry and competitive position.
B. A periodic report after results focuses on what the news changes, not on industry frameworks. The trap
C. A note for readers who already know the company skips the background.
From the lesson Equity research reports: contents, ratings and price targets
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23Compared with a sell-side analyst at an investment bank, a buy-side analyst at an asset manager is most likely to:
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The answer is B.
A. This describes sell-side research, which is distributed widely.
B. Buy-side research is internal, so it can use the firm's own models, customized to its decisions.
C. This is a sell-side restriction. It exists because the bank underwrites offerings. The trap
From the lesson Sell-side, buy-side and activist short-seller research
Module 12 The CAPM, the Market Model and Factor Models
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24A stock's returns have a standard deviation of 28% and a correlation of 0.60 with the market, whose standard deviation is 16%. The risk-free rate is 3.2% and the expected market return is 8.7%. Using the capital asset pricing model (CAPM), the stock's cost of equity is closest to:
Show the answer
The answer is B.
A. Inverts the volatility ratio: β = 0.60 × 16 ÷ 28 = 0.343, giving 3.2 + 0.343 × 5.5 = 5.09%.
B. β = 0.60 × 28 ÷ 16 = 1.05; 3.2 + 1.05 × (8.7 − 3.2) = 3.2 + 5.775 = 8.975, or 8.98%.
C. Multiplies beta by the expected market return instead of the premium: 3.2 + 1.05 × 8.7 = 12.34%. The trap
On your calculator- 0.6×28÷16= 1.05
- ×(8.7−3.2)+3.2= 8.975
- 0.6ENTER28×16÷ 1.05
- 8.7ENTER3.2−×3.2+ 8.975
ENTER enter (on the HP, puts the number on the stack)
From the lesson Estimating the cost of equity with the CAPM and the market model
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25An analyst values a private company using five listed comparables with an average levered beta of 0.90, an average ratio of debt to market value of equity of 0.50 and an average tax rate of 28%. The private company's ratio of debt to its estimated equity value is 0.25 and its tax rate is 21%. The company's estimated equity beta is closest to:
Show the answer
The answer is B.
A. The unlevered beta, 0.90 ÷ 1.36 = 0.66, before the company's own debt is added back.
B. β_u = 0.90 ÷ [1 + 0.72 × 0.50] = 0.90 ÷ 1.36 = 0.6618; β = 0.6618 × [1 + 0.79 × 0.25] = 0.6618 × 1.1975 = 0.7925, or 0.79.
C. Relevers the comparables' levered beta directly, 0.90 × 1.1975 = 1.08, which counts their leverage twice. The trap
On your calculator- 0.72×0.5+1=STO1 1.36
- 0.9÷RCL1=STO2 0.6618
- 0.79×0.25+1=×RCL2= 0.7925
STO store · RCL recall a stored number
- 0.9ENTER0.72ENTER0.5×1+÷ 0.6618
- 0.79ENTER0.25×1+× 0.7925
ENTER enter (on the HP, puts the number on the stack)
From the lesson Industry betas, the market risk premium and country risk
Keep going
Study the topic module by module in the Equities lessons, look up a word in the Level I glossary, or run a timed practice set that tracks your score by topic.