CFA Sample Practice Questions | Level 3| Answers and Explanations

This is a CFA Sample Practice Questions test for Level 3 with answers and explanations. The test consists of 10 questions covering various topics such as Black-Scholes option pricing model, efficient frontier, price-earnings multiple, bond duration, total return, inventory turnover, passive investment strategies, sustainable growth rate, and dividend discount model. The test is designed to assess your knowledge and understanding of these topics. Simply select your answers, click "Check Answers", and see your score along with explanations for each question. Test your knowledge and enhance your understanding of these important concepts.
CFA Sample Practice Questions | Level 3| Answers and Explanations

CFA Sample Practice Questions | Level 3| Answers and Explanations


1. Which of the following is an assumption of the Black-Scholes option pricing model?





2. Which of the following is true about the efficient frontier?





3. An analyst estimates that a company's expected earnings per share (EPS) for the next year will be $5. The current price-earnings (P/E) multiple of the company's stock is 20. What is the current price of the stock?





4. What is the duration of a bond with a 5% coupon rate, 2 years to maturity, and a yield to maturity of 6%?





5. An investor purchases a stock for $30 and sells it one year later for $33. During the year, the stock paid a dividend of $1. What is the investor's total return?





6. A company has an inventory turnover of 5 and an average inventory of $1 million. What is the cost of goods sold?





7. Which of the following is a disadvantage of using passive investment strategies?





8. A bond with a duration of 7 years has a yield to maturity of 5%. If the yield to maturity increases to 6%, what is the approximate percentage change in the bond's price?





9. A company has a dividend payout ratio of 60% and a return on equity of 15%. If the company's cost of equity is 10%, what is the company's sustainable growth rate?





10. Which of the following statements about the dividend discount model is true?