CFA Level 1 Practice Questions — All Questions

The concept that a dollar today is worth more than a dollar in the future is:

• a.Arbitrage
• b.Diversification
• c.The time value of money✓
• d.Duration

Time value of money reflects that money can earn a return over time.

A project should be accepted under the NPV rule when its net present value is:

• a.Negative
• b.Equal to the payback period
• c.Positive✓
• d.Exactly zero always rejected

Positive-NPV projects add value and should be accepted.

Standard deviation is a measure of:

• a.The mean only
• b.Dispersion (variability) of returns✓
• c.Correlation
• d.Central tendency

Standard deviation measures how spread out values are around the mean.

If two assets have a correlation of +1.0, combining them provides:

• a.No diversification benefit✓
• b.Guaranteed higher returns
• c.Zero risk
• d.Maximum diversification benefit

Perfectly positively correlated assets provide no diversification benefit.