CFA Level 1 free practice questions with answers
Read question 1 and its full worked answer from paper 1 of our 20-paper CFA Level 1 set, then download the 3-page PDF. These are original practice questions, not official past papers. Page updated 3 November 2026.
On close inspection, a limitation of the N-firm concentration ratio as a measure of market power is that it:
A. Accounts fully for potential entry from outside the market.
B. Ignores the effect of mergers among the largest firms already counted.
C. Always overstates competition relative to the Herfindahl-Hirschman Index.
Correct answer: B Ignores the effect of mergers among the largest firms already counted.
The concentration ratio sums the shares of the top N firms but is insensitive to mergers among those already within the top N and ignores barriers to entry. The HHI squares shares and is more sensitive to such changes.
Why the other options are wrong:
Always overstates competition relative to the Herfindahl-Hirschman Index. — the concentration ratio can understate or overstate competition; the specific flaw is insensitivity to mergers within the top N.
Accounts fully for potential entry from outside the market. — neither measure captures potential entry; both are static snapshots.
[EI · Forms of market efficiency]
Your sample is downloading. Liked it? CFA Level 1 Paper 1 is the full paper: 180 multiple-choice questions (3 options each) in 4 hours 30 minutes, in two sessions, with a worked solution for every question.
Get Paper 1 for A$19.99See all 20 papers from A$19.99More free CFA Exams samples
Questions about this sample
What is in the CFA Level 1 free sample?
The first 3 questions from paper 1 of the set, in the real exam layout, followed by the step-by-step worked answers. It is a 3-page PDF; this page shows question 1 with its answer.
How many full CFA Level 1 papers are there?
20 original papers for candidates preparing for the CFA Level 1 exam. Each is 180 multiple-choice questions (3 options each) in 4 hours 30 minutes, in two sessions, with a worked solution for every question. Papers start at A$19.99 and download instantly as a PDF.
Are these official past papers?
No. The sample is taken from our own original practice paper and is not an official past paper or affiliated with any exam authority.