CFA Level 3 Practice Questions (Mixed Format Samples)
Work through sample Level 3 item-set questions and one constructed-response prompt from our bank, with short explanations or a model answer. These are original study questions from this site, not official CFA Institute exam items. When you want a full timed sitting, free Level 3 Mock Exam 1 needs no account.
Item-set MCQs plus one constructed-response prompt. Open answers after you attempt each stem. Samples come from paid Mocks 2–3 — not free Mock 1. Constructed response is self-marked.
Ethical and Professional Standards
TOPIC: ETHICAL AND PROFESSIONAL STANDARDS
TOTAL POINT VALUE OF THIS QUESTION SET IS 12 POINTS
Priya Nair, CFA, manages both mutual-fund and separately managed account (SMA) sleeves in the same strategy at Cobalt Capital. When a limited IPO allocation arrives, Nair fills SMA accounts for her largest fee-paying clients first and allocates residual shares to the mutual fund.
A broker that executes Cobalt trades invites Nair to an exclusive golf weekend valued well above Cobalt’s gift limit. The broker’s research is mediocre, but Nair accepts and afterward increases order flow to that broker without a best-execution review.
Exhibit: Cobalt’s compliance calendar notes that the firm’s GIPS verification is due in 90 days. The mutual fund’s board met last month and approved a routine fee waiver unrelated to IPO allocations. Peakline Securities (a different broker) offered Nair a research terminal soft-dollar package that she declined.
Question 1 — Ethical and Professional Standards
Preferential IPO allocation to large SMA clients over the mutual fund most likely violates:
Fair dealing among clients
Only soft-dollar documentation rules
The duty to vote proxies
Show answer for question 1
Answer: A
A is correct. Material investment opportunities must be allocated fairly across eligible accounts; favoring high-fee SMAs over the mutual fund breaches fair dealing. B is wrong—the Peakline soft-dollar aside is a red herring. C is wrong—proxies are not implicated by IPO allocation. The incorrect choices reverse the conclusion or omit a required condition.
Question 2 — Ethical and Professional Standards
Accepting the lavish golf weekend and then steering more trades to the broker most clearly conflicts with:
Independence and objectivity / best execution duties
GIPS verification timelines only
Mandatory use of dark pools
Show answer for question 2
Answer: A
A is correct. Excessive gifts can impair objectivity, and increasing order flow without a best-execution review rewards entertainment rather than client interest. B misuses the GIPS calendar red herring. C invents a nonexistent dark-pool mandate. The incorrect choices reverse the conclusion or omit a required condition.
Asset Allocation
TOPIC: ASSET ALLOCATION
TOTAL POINT VALUE OF THIS QUESTION SET IS 12 POINTS
Ironclad Industries sponsors a frozen defined-benefit plan. Plan assets are USD 2.4bn; PBO is USD 2.55bn (funding ratio ≈ 94%). The sponsor’s credit rating is BBB and free cash flow is cyclical. The IPS risk budget caps a one-year decline in funded status at 8 percentage points at 95% confidence.
Staff proposes raising return-seeking assets from 35% to 50% of plan assets, financed by cutting long-duration bonds. ALM simulations show expected surplus volatility rising from 6% to 9% and the 95% funded-status drawdown rising from 7 pp to 11 pp.
Exhibit: Peer median return-seeking weight is 48%. Last year’s equity sleeve returned +21%. A consultant slide shows Ironclad’s discount rate is 20 bp above the peer median.
Question 3 — Asset Allocation
Compared with today’s policy mix, the staff proposal most clearly increases:
Surplus volatility and the risk of funded-status deterioration
Liability duration while lowering asset risk
Funding ratio by definition without changing risk
Show answer for question 3
Answer: A
A is correct. Cutting liability-hedging bonds for return-seeking assets widens surplus volatility and funded-status drawdown risk (simulations: 6%→9% surplus vol; 7→11 pp drawdown). B reverses the hedge-ratio effect. C invents a funding-ratio free lunch. Peer weights and last year’s equity return are red herrings.
Question 4 — Asset Allocation
Given the IPS 8 pp funded-status drawdown cap, the proposal is most appropriately viewed as:
Inconsistent with the stated risk budget (11 pp > 8 pp)
Automatically acceptable because the plan is frozen
Required under ERISA regardless of IPS limits
Show answer for question 4
Answer: A
A is correct. Simulated 11 pp drawdown breaches the board’s 8 pp risk budget. B is wrong—frozen plans still manage surplus risk. C invents a regulatory override of the IPS. Discount-rate peer gap is irrelevant to this item. The incorrect choices reverse the conclusion or omit a required condition.
Specialized pathway (Private Wealth)
TOPIC: PRIVATE WEALTH PATHWAY
TOTAL POINT VALUE OF THIS QUESTION SET IS 12 POINTS
Amira Solís, age 52, earns a high salary, maxes tax-deferred savings, and holds a concentrated employer stock position equal to 35% of investable assets. She plans to retire at 60, needs flexibility for a possible career break in three years, and supports elderly parents with USD 24k/year. Risk tolerance questionnaire: moderate; she panics in drawdowns over 20%.
Exhibit (planner note): Solís’s sibling recently retired to a coastal condo and urged her to “go 90% equity like I did.” She also mentioned she might fund a niece’s study-abroad semester “someday”—no amount or date. Her employer’s ESPP purchased shares last month at a 15% discount.
Ability: High salary / human capital is concentrated with the same employer as the 35% stock position — ability may be lower than income alone suggests (single-employer risk).
Constraint 1: Liquidity — USD 24k/year parental support plus possible career-break spending in ~3 years.
Constraint 2: Concentration / single-stock risk (35% employer stock) and/or time horizon to retirement at 60 with tax-deferred account location — not the sibling’s 90% equity anecdote or vague niece gift.
Score willingness (moderate / 20% drawdown) and ability (employer concentration of HC + stock). Constraints: parental support / career-break liquidity and concentration (or horizon/tax). Sibling “90% equity” and vague niece funding are red herrings; ESPP discount is secondary color unless tied to concentration. The incorrect choices reverse the conclusion or omit a required condition.
The samples below mix item-set MCQs with a constructed-response note so you can see both modes. Untimed drills help you rehearse fair-dealing judgments, surplus-aware allocation logic and IPS command words. A full Level 3 Mock Exam is a 132-minute mixed session that switches between item sets and constructed response under one clock.
Odd-numbered forms on this site use 5 item sets and 6 constructed-response sets; even-numbered forms use 6 and 5. The official exam is two such sessions (22 sets total); each of our forms is one practice session. Free Mock Exam 1 needs no account and auto-scores item-set MCQs; constructed response is self-review with a model answer.
Item sets still use a shared vignette and four MCQs, but the curriculum mix emphasises portfolio management, wealth and private markets pathways alongside Ethics and asset allocation. Constructed-response sets use command words such as Identify, Calculate and Determine; graders look for the required points, not prose length.
Train yourself to switch modes without losing time: finish the MCQ set cleanly, then outline essay bullets before writing. Do not invent facts the vignette never states, and do not spend the whole essay budget on a single bullet when the prompt asks for two constraints and two risk objectives.
When to start Level 3 timed practice
Sit one mixed Mock Exam once you understand the session structure, even if pathway readings are incomplete — the goal is a baseline on mode-switching, not a final score.
The most useful sittings come after you have practised writing under a timer. Leave space between Mock Exams to self-mark essays against model answers and to repair weak pathways.
How to review a mixed sitting
Auto-scored MCQs: log every miss with topic and the vignette fact you skipped.
Essays: self-mark Full / Partial / Miss against the model bullets before reading the explanation.
Note whether you lost points on command-word misses (wrong verb) or on missing a required constraint.
Retry the constructed-response prompt in outline form after a gap.
Look for patterns across sittings before changing your pathway study plan.
What CFA Mock Exam offers for Level 3
Mock 1 is free: a timed 132-minute mixed session with an instant item-set score, no account or card needed. Paid Level 3 access unlocks all four timed Mock Exams, explanations and model answers. See the Level 3 hub or compare access options.
Our Mock Exams are supplementary practice. A practice score helps you decide what to revise; it does not predict your CFA exam result.
Frequently asked questions
Are these official CFA Level 3 questions?
No. CFA Mock Exam is independent practice software and is not affiliated with CFA Institute. Registered candidates also receive official practice from CFA Institute.
Is there a free CFA Level 3 mock exam?
Yes. Mock 1 is free: a timed 132-minute mixed session with an instant item-set score, no account or card needed. Paid access unlocks Mocks 2–4 and full review tools.
Are constructed responses auto-scored?
No. Item-set MCQs are auto-scored; constructed response shows a model answer so you can self-mark Full, Partial or Miss.
How should I use these practice questions?
Answer MCQs without notes, then open explanations. For the essay sample, write brief bullets before reading the model answer. Confirm progress in a full timed Mock Exam.
Does a practice score predict my result?
No. A practice score helps you decide what to revise next; it does not predict a CFA exam result.
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