📘CFA® Level I Mock Examination Session – Derivative Investments
Welcome to the Derivative Investments session of the CFA E-Global Academy CFA® Level I Mock Examination.
Derivative Investments introduces candidates to one of the most dynamic and sophisticated areas of modern finance. Derivatives are financial instruments whose value is derived from an underlying asset, interest rate, currency, index, or commodity. They play a vital role in risk management, portfolio construction, price discovery, and investment strategy, making them indispensable tools for investment professionals across global financial markets.
This topic equips candidates with the analytical framework required to understand derivative instruments, evaluate their pricing and valuation, and recognize their applications in hedging, speculation, arbitrage, and portfolio management. A strong understanding of derivatives also strengthens your knowledge of Fixed Income, Portfolio Management, and Risk Management by illustrating how financial risks can be transferred, managed, and priced.
This session has been carefully designed to simulate the style, complexity, and time constraints of the actual CFA Level I examination while assessing your ability to apply derivative concepts and valuation techniques in practical investment scenarios.
Mock Exam Information
| Item | Details |
| Mock Exam ID | CFA-I-S07-M00 |
| Session | Derivative Investments |
| Number of Questions | 13 Questions |
| Total Mock Exam Questions | 200 Questions |
| Session Representation | 7% of the Complete Mock Examination |
| Session Mark (Points) | 13 Points |
| CFA Institute Topic Weight | 5%–8% |
| Time Limit | 16 Minutes |
📚 Topics Covered
This session includes questions drawn from the following major Derivative Investments topics:
📑 Derivative Instrument and Derivative Market Features
🤝 Forward Commitment and Contingent Claim Features and Instruments
⚖ Derivative Benefits, Risks, and Issuer and Investor Uses
🔄 Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives
📈 Pricing and Valuation of Forward Contracts for an Underlying with Varying Maturities
📊 Pricing and Valuation of Futures Contracts
🔁 Pricing and Valuation of Interest Rate and Other Swaps
📉 Pricing and Valuation of Options
♻ Option Replication Using Put–Call Parity
🌳 Valuing a Derivative Using a One-Period Binomial Model
Each question has been developed to evaluate your understanding of derivative markets, pricing relationships, valuation techniques, and the practical use of derivatives in investment and risk management.
📝 Session Structure
This session contains:
- 13 Multiple-Choice Questions
- One Point Awarded per Question
- 13 Total Available Points
- 16-Minute Time Limit
The questions represent approximately 7% of the complete 200-question mock examination, closely reflecting the 5%–8% Derivative Investments weighting established by CFA Institute for the Level I examination.
⏱ Time Management Recommendation
You have 16 minutes to complete this session.
To maximize your performance, consider the following strategy:
- Allocate approximately 1 minute to conceptual questions involving derivative instruments, market features, and risk management applications.
- Reserve 1–2 minutes for numerical questions involving forward pricing, futures valuation, swap valuation, option pricing, put–call parity, or binomial valuation.
- Carefully identify the derivative instrument and the pricing model being tested before beginning any calculations.
- If a question requires lengthy computations, make your best selection, flag it for review if your testing environment permits, and continue to maintain an efficient pace.
Effective time management and disciplined analytical thinking are essential for success on the CFA examination.
🎯 Learning Objectives
Upon completing this session, you should be able to:
- Explain the characteristics and economic functions of derivative instruments and derivative markets.
- Distinguish between forward commitments and contingent claims and identify their investment applications.
- Evaluate the benefits, risks, and practical uses of derivatives for issuers and investors.
- Apply the principles of arbitrage, replication, and cost of carry to derivative pricing.
- Calculate and interpret the pricing and valuation of forward contracts across different maturities.
- Value and analyze futures contracts and understand their role in risk management.
- Explain the pricing and valuation of interest rate swaps and other swap agreements.
- Calculate the value of options and interpret option payoff characteristics.
- Apply put–call parity to replicate option positions and identify arbitrage opportunities.
- Use the one-period binomial model to estimate derivative values under risk-neutral assumptions.
💡 Candidate Tips
- Begin by identifying the derivative instrument being tested before reviewing the answer choices, as pricing models differ across forwards, futures, swaps, and options.
- Carefully distinguish between contract pricing, contract valuation, and payoff calculations, as these concepts are frequently examined together.
- For calculation-based questions, organize your work systematically and verify key inputs such as interest rates, exercise prices, contract maturity, and underlying asset values.
- Understand the economic intuition behind arbitrage, replication, and risk-neutral valuation rather than relying solely on memorized formulas.
- Remember that derivatives are closely integrated with Fixed Income Investments, Portfolio Management, Economics, and Quantitative Methods, making this session valuable for developing a comprehensive understanding of investment risk and valuation.
🏆 Good Luck!
This Derivative Investments session is designed to evaluate your understanding of derivative instruments, pricing models, and risk management applications while strengthening your ability to apply analytical techniques used by investment professionals in today’s global financial markets.
Approach each question methodically, apply sound financial reasoning, manage your time effectively, and use your results to identify opportunities for continued improvement throughout your CFA preparation.
Understand the Instruments • Apply the Models • Manage Risk with Confidence
— CFA E-Global Academy Academic Team
