CFA Level 2
If you look at CFA Level 2 exam preparation tips, you can assume that you have already completed your CFA Level 1 course. Firstly, congratulations, and good luck with CFA Level 2! Now, let us look at CFA Level 2 and attempt to pass out with a similar intensity. CFA Level 2 exam is considered the toughest of the three levels of the CFA examination.
We have brought a comprehensive guide that will help you know what you can expect from the CFA Level 2 exam. This guide will cover the syllabus, study plan/tips, pass rates, and results to get you started. So read slowly, understand everything and let this article be your first preparation step.
Without any ado, let’s begin.
Table of contents
- CFA Level 2
- About CFA Level 2 Exam
- CFA Level 2 Exam Weights / Syllabus
- Ethics and Professional Standards – 10 – 15% weight
- Quantitative Methods – 5-10%
- Economics – 5-10%
- Financial Reporting and Analysis – 10-15%
- Corporate Finance – 5-10%
- Equity Investments – 10-15%
- Fixed Income – 10-15%
- Derivatives 5-10%
- Alternative Investments – 5-10%
- Portfolio Management and Wealth Planning 10-15%
- CFA Level 2 Pass Rates
- CFA Level 2 Exam Format Key Highlights
- CFA Level 2 Study Plan / Prep Tips
- CFA Level 2 exam is the hardest of all level
- You need to double your preparation time:
- Know the weights of the subject (according to item sets):
- Basics of CFA Level 1 would be required.
- Give special attention to the distribution of time:
- Should you read the vignette first or read the questions first?
- Try to Score more than 70% in each section.
- CFA Level 2 Exam Fees
- Over to You!
Also, Complete the checkout Guide to CFA ExamCFA ExamThe Chartered Financial Analyst (CFA®) Program offers a graduate-level curriculum and examination program designed to expand your working knowledge and practical skills related to investment decision-making. .
About CFA Level 2 Exam
|Exam||CFA Level 2 Exam|
|Fees||Standard registration fee|
$700 – $1,000.
|Core Areas||Ethics, Quantitative Methods, Economics, Financial Reporting, and Analysis, Corporate Finance, Equity Investments, Fixed Income, Derivatives, Alternative Investments, Portfolio Management and Wealth Planning.|
|CFA® Exam Dates||CFA® Level 2 is conducted three times a year (Feb, Aug, Nov).|
|The Deal||CFA Level 2 is a full-day six-hour examination. Candidates must pass CFA Level 1 before advancing to CFA Level 2 but can repeat a test if they fail to pass.|
|Format||Item sets / Mini case studies.|
|Number of Questions||120 questions.|
20 item sets with 6 multiple choice questions each: –
Session 1- 10-item sets
Session 2- 10-item sets.
|Pass Rate||46% in June 2016.|
|Recommended Study Hours||A minimum of 300 hours of preparation for CFA Level 2 is recommended.|
|What next?||After passing CFA Level 2, you can appear for the final CFA Level 3. Once you clear CFA Level 3, you are entitled to the CFA Charter (provided you have the requisite professional work experience).|
|Eligibility for CFA Charter||You must have one of the following: –|
Bachelor’s (or equivalent) degree.
The final year of the bachelor’s degree program.
Have four years of professional work experience.
Having a combination of professional work and university experience of at least four years.
CFA Level 2 Exam Weights / Syllabus
The syllabus of CFA Level 2 is quite comprehensive. This section will look at each subject, their CFA Level 2 exam weights, and how you should approach each topic as you start your preparation.
source: CFA Institute
If you observe, you may see that in CFA Level 2, the weightage is given to each subject in almost similar propensity (not precisely). In Level 1 and Level 3, the intensity differs according to subjects (even a few subjects you can skip), but in CFA Level 2, you need to study all.
Ethics and Professional Standards – 10 – 15% weight
Ethics, for me, was one of the most challenging topics. Since I did not score well in CFA Level 1 in the Ethics section, I was determined to spend more time on this section. My opinion would be to check how your score was in CFA Level 1. You already have an excellent foundation if you have scored more than 70%. However, please spend a fair amount of time on this section if you score lower. Please do not forget that this section comes again in CFA Level 3.
Quantitative Methods – 5-10%
Do not neglect Quantitative Methods. You may get 1 to 2 vignettes from this section. It was again one of the most substantial areas, and I preferred to complete these sets of questions before attempting other complicated sections. Quantitative Methods are both formulae as well as concept-oriented. You should not face many issues if you are from an engineering/maths background. Others, please do take the time to practice this section.
Economics – 5-10%
Expect two vignettes from this economics section. First, the topics included are exchange rate determination and forecast, economic growthEconomic GrowthEconomic growth refers to an increase in the aggregated production and market value of economic commodities and services in an economy over a specific period. and regulation, Macro vs. MicroeconomicsMacro Vs. MicroeconomicsMacroeconomics examines the elements that influence the local, regional, national, or global economy, as well as the overall economy's averages and aggregates. Microeconomics, on the other hand, is a narrower concept concerned with the decision-making of single economic variables and only interprets the economy's tiniest components.. Unfortunately, this section was one of my weaker areas. So, I read this section twice and practiced as many questions as possible.
Financial Reporting and Analysis – 10-15%
I loved this Financial StatementFinancial StatementFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels. Analysis section. By far, for me, it was the easiest and most interesting one. However, I must say that this section is the hardest as well, mainly if you are from a non-accounting background. CFA Level 2 financial reporting goes deep into individual concepts, so take time to practice as many questions as possible. It was the end of the chapter questions from CFA Institute books that did the trick.
Corporate Finance – 5-10%
Here, you may expect 1-2 vignettes. Topics include Capital BudgetingCapital BudgetingCapital budgeting is the planning process for the long-term investment that determines whether the projects are fruitful for the business and will provide the required returns in the future years or not. It is essential because capital expenditure requires a considerable amount of funds., Capital Structure, Dividends, Share BuybackShare BuybackShare buyback refers to the repurchase of the company’s own outstanding shares from the open market using the accumulated funds of the company to decrease the outstanding shares in the company’s balance sheet. This is done either to increase the value of the existing shares or to prevent various shareholders from controlling the company. Repurchase, Corporate Governance, Mergers and AcquisitionsMergers And AcquisitionsMergers and acquisitions (M&A) are collaborations between two or more firms. In a merger, two or more companies functioning at the same level combine to create a new business entity. In an acquisition, a larger organization buys a smaller business entity for expansion., and Corporate Performance. I found this section closely aligned with the Financial Reporting and Analysis. My take is that this is low-hanging fruit. You should master this concept to score well in the CFA Level 2 exam.
Equity Investments – 10-15%
Along with Financial Reporting and Analysis, this section is one of the foundation level sections of CFA level 2. Topics include Industry Analysis and Company Analysis, Dividend Discount Valuation Model, Free Cash Flow to FirmFree Cash Flow To FirmFCFF (Free cash flow to firm), or unleveled cash flow, is the cash remaining after depreciation, taxes, and other investment costs are paid from the revenue. It represents the amount of cash flow available to all the funding holders – debt holders, stockholders, preferred stockholders or bondholders., Free Cash Flow to EquityFree Cash Flow To EquityFCFE (Free Cash Flow to Equity) determines the remaining cash with the company's investors or equity shareholders after extending funds for debt repayment, interest payment and reinvestment. It is an indicator of the company's equity capital management, Market-based Equity MultipleEquity MultipleEquity multiple refers to the growth potential of an asset or investment measured in the number of times the current value is of the initial investment. It is computed as the present value of a property divided by the amount invested. and Enterprise Valuation Multiples, and Residual Income MethodResidual Income MethodResidual income refers to the net earnings an organization possess after paying off the cost of capital. It is acquired by deducting the equity charges from the company's net profit or income.. You must master this one! But, trust me, this one is easy too!
Fixed Income – 10-15%
You can expect 2-3 vignettes from the Fixed IncomeFixed IncomeFixed Income refers to those investments that pay fixed interests and dividends to the investors until maturity. Government and corporate bonds are examples of fixed income investments. section. This one is the favorite of those who are good at Quantitative Analysis. Topics include term structureTerm StructureThe term structure is the graphical representation that depicts the relationship between interest rates and various maturities. The graph itself is called a “yield curve.” The term structure of interest rates plays an essential part in any economy by predicting the future trajectory of rates., future-forward, yields, swaps, an arbitrage-free valuation framework, valuation of bonds, embedded options, credit analysis modelsCredit Analysis ModelsCredit analysis is the process of drawing conclusions about an entity's creditworthiness based on available data (both quantitative and qualitative) and making recommendations about perceived needs and risks. Credit analysis also involves identifying, assessing, and mitigating risks associated with an entity's failure to meet financial commitments., credit default swapsCredit Default SwapsA Credit Default Swap (CDS) is a financial agreement between the CDS seller and buyer. The CDS seller agrees to compensate the buyer in case the payment defaults. In return, the CDS buyer makes periodic payments to the CDS seller till maturity., etc. Many candidates find this part difficult. So, start with the necessary foundation of the topic and practice the questions as much as possible.
Expect 1-2 vignettes from the derivatives section. Topics here include pricing of forwards commitments, contingent claims, options trading strategiesOptions Trading StrategiesOptions trading refers to a contract between the buyer and the seller, where the option holder bets on the future price of an underlying security or index., etc. This one again is the favorite topic of Quant-oriented folks. There are various formulas here; however, you need to first get through the necessary foundations. Also, make sure to practice these questions using your CFA calculator.
Alternative Investments – 5-10%
Expect 1-2 vignettes during your CFA level 2 exam. The important topics include Real Estate Investments, Private Equity Valuations, Commodities, and Commodity Derivatives. This topic is more conceptual with some numerical. Please do not neglect this section as it may become a deal-breaker.
Portfolio Management and Wealth Planning 10-15%
Expect 1-2 vignettes from Portfolio and Wealth management. This one can be very easy or difficult at the same time. Do you read the topics very carefully? It includes Portfolio ManagementPortfolio ManagementPortfolio management involves overseeing a set of investments, including securities, bonds, exchange-traded funds, mutual funds, cryptocurrencies, etc., on a personal or professional level, Investment Policy Statements, Multifactor Models, VAR, Economic Analysis, Active Management, and Trading. Make some time learning the Investment Policy Statements as this is the right foundation of the most important topic found in CFA Level 3.
CFA Level 2 Pass Rates
It is important to study hard. Knowing the pass rates beforehand helps you intensify your preparation. In this section, we will look at monumental data. From 1963 to 2016, we will investigate all the data and determine how effortless CFA Level 2 is.
CFA Level 2 Passing Rates between 1964-1981
The passing rates for CFA Level 2 were very high in the initial years. For example, between 1964 and1981, the average passing rate for CFA Level 2 was 78%.
source: CFA Institute
CFA Level 2 Passing Rates between 1982-2000
Between 1982 and 2000, the average passing rate for CFA Level 2 dropped from 78% in the earlier period to 64%.
However, there was no rise in the total number of CFA Level 2 candidates. On the contrary, the number of candidates appearing for CFA Level 2 increased dramatically.
source: CFA Institute
CFA Level 2 Passing Rates between 2001-2016
- Between 2000 and 2016, the average passing rate for CFA Level 2 dropped further from earlier periods to 44%.
- In June 2016, the passing rate for CFA level 2 was 46%.
- Also, you may note that the total number of candidates appearing for CFA Level 2 steadily increased during these 15 years.
source: CFA Institute
As you can see, the intensity of CFA Level 2 requires studying hard. So, buckle up and start preparing.
CFA Level 2 Exam Format Key Highlights
Before we go ahead and talk about study tips, have a look at the exam format so that you can prepare yourself accordingly.
Unlike the CFA Level 1 exam, in CFA Level 2, you need to understand each concept in depth to answer vignettes (mini-cases) comfortably.
|Exam||CFA Level 2|
|Number of questions (total)||120|
|Type of question||Vignettes (Mini-cases)|
|Time allotted||360 minutes|
|Full marks||360 points|
|Every correct answer||3 points|
|Every incorrect answer||No penalty|
|Sessions||2 (Morning & Afternoon)|
|Set of questions in each session||10|
|In each question, the number of vignettes||6|
source: CFA Institute
- There would be 10-item set questions in the morning session, each set containing six vignettes.
- It would need to opt for 10-item set questions containing the same six vignettes in the afternoon session.
- There will be a total of 360 points for the whole exam. You would be given 3 points for each correct answer, and there is no penalty for any incorrect answer. The duration would be 360 minutes (6 hours) for the whole exam.
- The major change in the pattern is that there is a 10-item set (each around 400-800 words) with six multiple-choice questions in each session (morning and afternoon session). These six questions may be dependent or independent of each other.
- Each item set question covers only one study session (FSA, Ethics, Portfolio), making it easier to solve the vignette.
CFA Level 2 Study Plan / Prep Tips
If you have just passed CFA Level 1 and think that you may crack CFA Level 2 exam at one time, then you may have estimated the difficulty level of the CFA Level 2 exam by the number of questions. Unfortunately, while the number of questions in the CFA Level 2 exam is certainly lower, the difficulty level of the exam is much higher than CFA Level 1.
Here are the few things you need to keep in mind if you want to crack the CFA Level 2 exam in one go.
CFA Level 2 exam is the hardest of all level
- No, it is not what we are saying. Rather, it is advised by the professionals who have already excelled in CFA. According to them, by some means, the CFA Level 2 exam is the toughest compared to its other two counterparts.
- There are several reasons for that. First of all, CFA Level 1 is easier for people who are good in finance and possess a background in economics and maths.
- Secondly, when the students are transitioning from Level 1 to Level 2, they cannot understand the difficulty level of the CFA Level 2 exam until they face the questions in the examination hall.
- Of course, these are generalized statements and do not include everybody. Despite that, there is truth in these statements. So do not take the CFA Level 2 exam lightly.
- Also, note that now with CFA Level 2, the competition is between serious candidates who have surpassed the Level 1 examination.
You need to double your preparation time:
- If you have studied 2-3 hours a day for the CFA Level 1 exam, you need to double that amount every day to pass the CFA Level 2 exam.
- And require much more depth in comprehending the concepts than you did in the CFA Level 1 exam. Often the vignettes are too straightforward, and you need to answer only one thing without having any chance to elaborate.
- Plan and have ample time to study the whole curriculum at least three times. Then practice sample questions so that you do not experience a certain burst of shock while attempting the vignettes in the examination hall.
Know the weights of the subject (according to item sets):
- It would help if you were a know-it-all wizard. Yes, we do not doubt that.
- But still, you need to prioritize and give more weight to the subjects that can act mightier in the item set questions. So, you need to know what to expect from them.
- Four topics – Ethics, Financial Reporting & Analysis, Equity Investment, and Fixed Income represent approx. 50%-80% of the weightage.
Basics of CFA Level 1 would be required.
- CFA is a dynamic course, and each level is intertwined.
- So, if you want to make your mark in the CFA Level 2 exam, you need to be thorough with the foundation concepts of CFA Level 1.
- You may also need to go back and understand a few concepts in the CFA Level 1 exam.
Give special attention to the distribution of time:
- Vignette-type questions take more time to answer than any multiple-choice type questions.
- Thus, it would help if you practiced a lot more before you ever got to answer everything in the examination hall perfectly. In the final section, we will discuss sample questions to get an idea about what to expect in the question paper.
- Practicing sample questions is a must; otherwise, it would be difficult to clear the CFA Level 2 exam in one shot.
Should you read the vignette first or read the questions first?
- Many candidates prefer to read the questions first to understand the kind of questions expected from the vignette (numerical, conceptual, factual) and then the case study. However, I have never tried this approach.
- My approach was straightforward. I used to read the vignette quickly before the question. To answer the questions, you will have to refer back to vignettes.
Try to Score more than 70% in each section.
- CFA does not provide individual section passing scores.
- However, it is safe to assume that you would not fail if you scored more than 70% in each section.
- As a strategy, I used to pick sections where I was determined. My best section was Financial Reporting and Analysis.
- Choosing the strongest helps you build confidence during the exam and also enables you to save valuable time that you can use for attempting the weaker sections.
CFA Level 2 Exam Fees
Knowing how much you need to pay for the CFA Level 2 exam is important. So, let us have a look. You have already paid the enrolment fees as you have passed out from the CFA Level 1 exam. Here are the June 2017 exam details if you want to sit for the CFA Level 2 exam.
source: CFA Institute
While paying the exam registration fees, you would be receiving the following things: –
- The e-book contains everything needed to study for the exam (the complete curriculum, to be precise).
- You will receive a study planner that helps track your exam preparation and guide you ahead of time.
- You will also get topic-based practice tests.
- You will also acquire mock exams.
- Lastly, you will be given a mobile app to help you access everything else mentioned above.
To purchase a print version of the complete curriculum, you can pay the non-refundable $150 plus shipping.
Over to You!
CFA Level 2 exam is the most difficult exam in finance compared to all the courses in the finance domain. You know now why the CFA Level 2 exam needs all your effort, time, and hard work from the above examples, stats, tips, and sample questions.
And if you are a working professional, you need to prioritize your schedule so that you get to study daily for a few hours. Often, it is hard, and you may feel like not doing it. But for a year, if you can pursue this schedule, you will certainly see it in your results. I hope this guide has helped you shape your idea of how to start preparing for the CFA Level 2 exam. Get started right away. The clock is ticking.
This article is a guide to a complete peeks into the CFA Level 2 Syllabus, Exam Tips, Pass Rate, Results, Sample Questions appearing in the exam, etc. You may also look at the following articles for more information: –