Free CFA Level III Practice Exam
More than 200 questions · Updated Nov 3, 2026
The CFA Program Level III exam, administered by CFA Institute, is the third of three sequential exams required for the CFA charter and focuses on portfolio management and wealth planning.
CFA Level III at a glance
- Number of questions
- 44 multiple-choice questions in 11 item sets, plus 11 constructed-response sets
- Time
- 4 hours 24 minutes
Full exam format
Prerequisites: Passing the CFA Program Level II exam, and meeting the CFA Program enrollment requirements. This site has more than 200 free CFA Level III practice questions with explanations.
Try a few CFA Level III questions
An endowment's appraisal-based private equity returns show a monthly standard deviation of 1.0%, while a listed buyout-sector equity index has 4.5%. The private valuations are updated quarterly. A mean-variance optimizer using the reported private equity statistics assigns it 35% of the portfolio. What is the most likely cause of this result?
- A.Private equity has genuinely lower risk because appraisals are audited by independent valuers, which makes the reported 1.0% volatility a reliable input
- B.Appraisal smoothing understates volatility and correlation with public markets, inflating private equity's apparent risk-adjusted return
- C.The optimizer overstates the illiquidity premium because quarterly data contain too many observations
- D.Using monthly rather than annual data biases optimized weights toward the highest-return assets
Show answer and explanationHide answer
Correct answer: B. Appraisal smoothing understates volatility and correlation with public markets, inflating private equity's apparent risk-adjusted return
Appraisal-based valuations lag and smooth market moves, understating volatility and correlations. Unadjusted inputs make illiquid assets look better than their economic risk justifies; returns should be desmoothed.
- A. Audits do not remove the smoothing created by infrequent appraisal.
- B. Correct: smoothed data distort the risk inputs and drive an oversized weight.
- C. The issue is understated risk, not too many observations.
- D. Data frequency is not the problem; the smoothing within the data is.
A portfolio of USD 10.0 million uses CPPI with a floor of USD 8.0 million and a multiplier of 4. The initial equity allocation is 4 x (10.0 - 8.0) = USD 8.0 million, with USD 2.0 million in the safe asset. Equities then fall 10%, with the safe asset unchanged. What trade does CPPI require?
- A.Buy USD 0.16 million of equities
- B.Sell USD 2.4 million of equities
- C.Sell USD 4.8 million of equities
- D.Sell USD 0.8 million of equities
Show answer and explanationHide answer
Correct answer: B. Sell USD 2.4 million of equities
Equities become 7.2; portfolio = 9.2; cushion = 9.2 - 8.0 = 1.2; target equities = 4 x 1.2 = 4.8. Equities held are 7.2, so sell 7.2 - 4.8 = 2.4 million.
- A. Wrong: this is the constant-mix 80% trade (target 7.36 versus 7.2 held); it is not CPPI.
- B. Correct: the cushion shrinks to 1.2, so the equity target falls to 4.8 million.
- C. Wrong: 4.8 million is the new target equity amount, not the sale.
- D. Wrong: 0.8 million is the drop in cushion, not the required sale.
A fund returned 9.0% for the year. The investor's minimum acceptable return is 4.0%, and the fund's downside deviation relative to that target was 6.0%. What is the Sortino ratio?
- A.0.83
- B.1.50
- C.0.50
- D.0.67
Show answer and explanationHide answer
Correct answer: A. 0.83
Sortino ratio = (portfolio return - minimum acceptable return) / downside deviation = (9.0 - 4.0) / 6.0 = 0.83. Only returns below the target enter the risk measure.
- A. Correct: 5.0 / 6.0 = 0.83.
- B. Measures return against zero instead of the 4.0% target.
- C. Divides by a larger risk figure than the stated downside deviation.
- D. Divides the target return by the downside deviation, omitting the fund's return.
Practice the CFA Level III
Work through exam-style questions for the CFA Program Level III Exam, one at a time, with an explanation after each answer. No account required. Sign in only if you want your progress synced across devices.
Questions are drafted with help from AI and published only after a person reviews and approves them. How these questions are made
What’s on the CFA Level III
Asset Allocation15-20%
Asset Allocation
Capital market expectations, principles of asset allocation, and asset allocation with real-world constraints.
Portfolio Construction15-20%
Portfolio Construction
Portfolio management for institutional and individual investors, implementation and rebalancing.
Performance Measurement5-10%
Performance Measurement
Performance attribution, benchmarking and performance appraisal.
Derivatives and Risk Management10-15%
Derivatives and Risk Management
Option strategies and the use of derivatives to manage interest rate, equity and currency risk.
Ethical and Professional Standards10-15%
Ethical and Professional Standards
The Code and Standards of Professional Conduct and the Global Investment Performance Standards.
Pathway30-35%
Portfolio Management Pathway
Index-based and active equity and fixed-income strategies, and trade strategy and execution.
Private Markets Pathway
Private equity, private debt, private real estate and infrastructure, and fund structures.
Private Wealth Pathway
Wealth planning, investment planning, preserving and transferring wealth, and advising wealthy clients.
Practice CFA Level III by topic
About the CFA Level III exam
- Passing score
- CFA Institute does not publish a fixed passing percentage. The Minimum Passing Score is maintained from one administration to the next through equating unless a significant change prompts the Board of Governors to reset it; it is set through a criterion-referenced standard-setting process.
- Prerequisites
- Passing the CFA Program Level II exam, and meeting the CFA Program enrollment requirements.
- Format
- 11 item sets (4 multiple-choice questions each) and 11 constructed-response (essay) sets, split into two sessions of 2 hours 12 minutes (4 hours 24 minutes total), computer-based, with an optional break between sessions; one item set and one constructed-response set are unscored trial sets
- Level
- Level III of III sequential exams required for the CFA charter
- Who it's for
- Candidates who have passed Level II and are completing the CFA charter, including portfolio managers, wealth advisers and other professionals who build and manage portfolios for clients.
CFA Level III exam FAQ
How many questions are on the CFA Level III exam?
44 multiple-choice questions in 11 item sets, plus 11 constructed-response sets
What is a passing score on the CFA Level III?
CFA Institute does not publish a fixed passing percentage. The Minimum Passing Score is maintained from one administration to the next through equating unless a significant change prompts the Board of Governors to reset it; it is set through a criterion-referenced standard-setting process.
What is the format of the CFA Level III exam?
11 item sets (4 multiple-choice questions each) and 11 constructed-response (essay) sets, split into two sessions of 2 hours 12 minutes (4 hours 24 minutes total), computer-based, with an optional break between sessions; one item set and one constructed-response set are unscored trial sets
Are there prerequisites for the CFA Level III?
Passing the CFA Program Level II exam, and meeting the CFA Program enrollment requirements.
Who should take the CFA Level III?
Candidates who have passed Level II and are completing the CFA charter, including portfolio managers, wealth advisers and other professionals who build and manage portfolios for clients.
More practice exams
Already working in the field?