100+ Free CFE 201 Practice Questions

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Under Modigliani-Miller Proposition I in a world without taxes, bankruptcy costs, or asymmetric information, what determines a firm's total value?

Its capital structure mix of debt and equity

Its earning power and the risk of its underlying assets

The dividend policy chosen by the board

The personal tax rate of marginal investors

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2026 Statistics

Key Facts: CFE 201 Exam

~5 hrs

Exam Time

SOA CFE 201 page

~$1,275

Standard Fee

SOA fee table

Weighted Topic Areas

SOA CFE 201 syllabus

20%

Capital Structure Weight

SOA CFE 201 syllabus

Mar/Jul

2026 Sittings

SOA exam schedule

ASA

Practical Prerequisite

SOA FSA pathway

SOA CFE 201 Corporate Finance is a fellowship-level FSA exam in the CFE track, offered in March and July 2026 sittings. It is computer-based and runs about five hours, with mostly written-response questions structured around a case study. The current fee sits around $1,275 and SOA sets the pass mark each sitting using its content-based grading process. The syllabus weights Capital Structure and WACC most heavily at 20%, followed by Capital Budgeting, M&A Valuation, and Corporate Risk Management each at 15%, with Working Capital, Capital Allocation, and Governance each at 10%, and Insurance-Specific Corporate Finance at 5%.

Sample CFE 201 Practice Questions

Try these sample questions to test your CFE 201 exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.

1Under Modigliani-Miller Proposition I in a world without taxes, bankruptcy costs, or asymmetric information, what determines a firm's total value?

A.Its capital structure mix of debt and equity

B.Its earning power and the risk of its underlying assets

C.The dividend policy chosen by the board

D.The personal tax rate of marginal investors

Explanation: MM Proposition I (no taxes) states that firm value is independent of capital structure and is determined solely by the firm's operating cash flows and business risk. Capital structure simply slices the same pie between debt and equity holders.

2An all-equity firm has cost of equity 12%. It recapitalizes to a debt-to-equity ratio of 0.5 with pre-tax cost of debt 6%. Under MM Proposition II with no taxes, what is the new cost of equity?

A.12.0%

B.13.5%

C.15.0%

D.18.0%

Explanation: MM II (no taxes): Re = Ra + (Ra - Rd)(D/E) = 12% + (12% - 6%)(0.5) = 12% + 3% = 15%. Adding leverage raises required equity return to compensate equityholders for higher financial risk.

3A firm has market value of equity $600M, market value of debt $400M, cost of equity 14%, pre-tax cost of debt 7%, and tax rate 25%. What is its WACC?

A.9.50%

B.10.50%

C.11.20%

D.11.50%

Explanation: WACC = (E/V)Re + (D/V)Rd(1-Tc) = (0.6)(14%) + (0.4)(7%)(0.75) = 8.4% + 2.1% = 10.5%. The tax shield on debt lowers the effective debt cost from 7% to 5.25%.

4Using CAPM, a stock has beta 1.2, the risk-free rate is 4%, and the equity risk premium is 5.5%. What is the cost of equity?

A.9.5%

B.10.6%

C.11.4%

D.12.6%

Explanation: Re = Rf + β(Rm - Rf) = 4% + 1.2 × 5.5% = 4% + 6.6% = 10.6%. CAPM compensates investors for the risk-free rate plus systematic risk priced by the market.

5A pure-play comparable has equity beta 1.4, D/E 0.8, and tax rate 25%. Using the Hamada equation, what is the unlevered (asset) beta?

A.0.71

B.0.86

C.0.88

D.1.05

Explanation: Hamada: βu = βL / [1 + (1-Tc)(D/E)] = 1.4 / [1 + 0.75 × 0.8] = 1.4 / 1.6 = 0.875 ≈ 0.88. Unlevering removes the financial risk component from observed equity beta.

6Trade-off theory of capital structure predicts that the optimal debt level is reached when:

A.The marginal tax shield benefit equals the marginal expected bankruptcy cost

B.Total firm debt equals total firm equity at book value

C.Earnings before interest and taxes is fully sheltered by interest expense

D.The firm reaches its industry median debt ratio

Explanation: The static trade-off theory balances the present value of interest tax shields against the present value of financial distress and bankruptcy costs. The optimum is at the margin where the next dollar of debt adds equal benefit and cost.

7Pecking order theory (Myers and Majluf) predicts firms prefer financing in which order?

A.Internal funds, then debt, then equity

B.Equity, then debt, then internal funds

C.Debt, then equity, then internal funds

D.Internal funds, then equity, then debt

Explanation: Asymmetric information makes equity issuance signal overvaluation, so firms prefer internal funds first, debt next, and equity as a last resort. This explains why profitable firms often carry less debt.

8Which scenario best illustrates an agency cost of debt rather than an agency cost of equity?

A.Empire-building managers acquiring negative-NPV businesses

B.Equityholders selecting an unusually risky project that benefits them at bondholders' expense

C.Free-cash-flow waste on perks and compensation

D.Failure to disclose internal performance metrics to shareholders

Explanation: Asset substitution (or risk shifting) is a classic agency cost of debt: equityholders capture upside while bondholders absorb downside, transferring wealth from creditors. The other items are agency costs between managers and equityholders.

9A firm has WACC of 9% and a constant after-tax operating cash flow of $36M perpetually. What is the firm's enterprise value under the WACC method?

A.$324M

B.$360M

C.$400M

D.$444M

Explanation: Enterprise value of a perpetuity = FCF / WACC = $36M / 0.09 = $400M. The WACC discount captures both debt and equity claims at their respective costs.

10Which best describes the signaling explanation for a firm announcing a significant share repurchase?

A.It mechanically reduces the share count and inflates EPS without information content

B.Management privately believes the stock is undervalued and is committing capital to back that view

C.It satisfies a regulatory liquidity requirement on insurance balance sheets

D.It always increases the firm's WACC

Explanation: Buybacks are widely interpreted as a credible signal that insiders view shares as undervalued, because management bears the cost if wrong. Empirical announcement returns are typically positive.

About the CFE 201 Exam

The SOA CFE 201 Corporate Finance exam is the second of two courses in the Corporate Finance and ERM (CFE) FSA track and replaces older CFE-FD coding under the SOA's 2025 FSA restructuring. It tests written-response, case-study mastery of capital structure, capital budgeting, M&A, corporate hedging, capital allocation, governance, and insurance-specific corporate finance.

Assessment

Computer-based written-response exam organized around an exam-day case study; offered in March and July 2026.

Time Limit

~5 hours (written-response with case study)

Passing Score

Pass mark set by SOA

Exam Fee

~$1,275 (Society of Actuaries (SOA))

CFE 201 Exam Content Outline

20%

Capital Structure and Cost of Capital

WACC components, MM Propositions I and II with and without taxes, Hamada levered/unlevered beta, trade-off and pecking-order theories, signaling, and bankruptcy and agency costs.

15%

Capital Budgeting

NPV, IRR, MIRR, payback, profitability index, project free cash flows, scenario and sensitivity analysis, and real options to defer, expand, or abandon.

10%

Working Capital Management

Cash conversion cycle, Baumol-Tobin and Miller-Orr cash management, trade credit economics, short-term financing, and insurer premium-receivable management.

15%

M&A Valuation

DCF, comparable companies, comparable transactions, accretion-dilution, EPS bootstrapping, premium analysis, synergy categories, LBO returns, and goodwill mechanics.

15%

Corporate Risk Management and Hedging

Swaps, futures, options for FX, interest rate, and commodity hedging; minimum-variance hedge ratios; ASC 815 / IFRS 9 hedge accounting; and COSO ERM and ISO 31000 frameworks.

10%

Capital Allocation Frameworks

EVA, MVA, RAROC, hurdle rates by business unit, marginal vs standalone capital allocation, Euler allocation, and economic-profit-aligned incentive design.

10%

Corporate Governance and Stakeholder Management

Board independence, audit committees, agency conflicts, executive compensation design, takeover defenses, SOX 404, say-on-pay, proxy advisors, and ESG/climate governance.

Insurance-Specific Corporate Finance

Insurer DCF, EV/MCEV, CFO Forum standards, IFRS 17 vs ASC 944 LDTI, Solvency II SCR/MCR/Risk Margin, NAIC RBC action levels, ORSA, and intercompany dividend restrictions.

How to Pass the CFE 201 Exam

What You Need to Know

Passing score: Pass mark set by SOA
Assessment: Computer-based written-response exam organized around an exam-day case study; offered in March and July 2026.
Time limit: ~5 hours (written-response with case study)
Exam fee: ~$1,275

Keys to Passing

Complete 500+ practice questions
Score 80%+ consistently before scheduling
Focus on highest-weighted sections
Use our AI tutor for tough concepts

CFE 201 Study Tips from Top Performers

1Practice writing concise, case-study-style answers that connect a corporate finance concept (e.g., WACC, EVA, hedge accounting) to a specific recommendation grounded in the case facts.

2Drill MM Propositions in both forms: pure capital-structure irrelevance without taxes, and tax-shield-driven WACC reduction with taxes; understand how Hamada relevering moves between them.

3Get comfortable with insurer-specific concepts: embedded value vs MCEV, IFRS 17 CSM vs US GAAP LDTI, Solvency II SCR/MCR/Risk Margin, and NAIC RBC action levels — these distinguish CFE 201 from generic corporate finance.

4Treat hedging questions as a workflow: identify exposure, choose instrument (swap/future/option), compute hedge ratio, and apply ASC 815 / IFRS 9 documentation requirements. The exam often combines mechanics with accounting consequences.

5Build a one-page mental map linking EVA, RAROC, hurdle rates, and capital allocation to value creation — capital allocation case studies are frequent and reward integrated thinking.

Frequently Asked Questions

How is CFE 201 different from the old CFE-FD exam?

Under the SOA's 2025 FSA restructuring, the legacy CFE-FD (Foundations of Decision Making) content was reorganized into a two-course CFE sequence. CFE 201 Corporate Finance is the second course and focuses on corporate finance fundamentals applied to insurance and financial services firms. Candidates sitting in 2026 use the new CFE 201 codes; older CFE-FD study notes still cover most underlying principles but no longer match the current syllabus structure.

When is SOA CFE 201 offered in 2026?

SOA's 2026 schedule lists CFE 201 sittings in March and July. Specific test dates and registration deadlines are published on the SOA exam schedule page; candidates select a Prometric center or remote-proctored slot during the sitting window.

How long is the CFE 201 exam and what is the format?

CFE 201 is computer-based and runs about five hours, with mostly written-response questions structured around a case study. Candidates type answers using the Prometric exam interface; some calculation work is supported but the emphasis is on synthesizing case-study facts into reasoned recommendations.

What is the passing score for CFE 201?

SOA does not publish a fixed raw cut score for CFE 201. Pass marks are set after each sitting using its content-based grading process and reported on a 0-10 scale, with grades from 6 to 10 considered passing. Detailed grading methodology is published on the SOA pass mark methodology page.

How much does SOA CFE 201 cost in 2026?

The standard CFE 201 fee is approximately $1,275 based on SOA's published fee table; rates vary slightly across years and registration windows. Late registration surcharges may apply, and candidates outside the US should check SOA's currency and policy notes on the fee table page.

How long should I study for CFE 201?

SOA does not publish an official study-hour expectation, but most candidates target 200-400 hours over three to five months. Time at the high end of that range is typical for candidates new to corporate finance theory or to insurance-specific frameworks like MCEV, IFRS 17, and ORSA.