In past years, we’ve posted quite a few reviews of previous essay questions from the CFA Level 3 exam. The CFA Institute makes the last three years’ morning section available for download and review on the website. The three downloads include the morning section of the exam as well as the guideline answers provided by the Institute.
I highly recommend you click through and download the 2012 through 2014 Level III CFA essay questions for review. Studying and working these questions is the best way to practice for the Level 3 essay section.
Instead of working through the 2014 questions, I thought we would highlight prior essay questions this year to give you a good resource of practice problems.
There doesn’t really appear to be much in the CFA Level 3 2015 changes that would affect your morning section essays. I posted a review of the Level 3 changes last August. Only one new reading was added (Market Indexes and Benchmarks) while two readings (International Equity Benchmarks – Corporate Performance, Governance and Business Ethics) were removed. A few of the topics have been shuffled a little but the readings have stayed largely the same.
A post last year looked at topics that typically show up on the morning section of the CFA Level 3 exam. There is no guarantee that these will show up on this year’s essay exam but you can see a pattern by studying the prior exams. Having an idea of what to expect can really help drive your study plans and give you the confidence you need going into the exam.
Individual Portfolio Management
This post works through Question #2 on the 2013 CFA Level 3 exam, an individual portfolio management question. The morning section ALWAYS starts out with at least one question on individual portfolio management. You need to work as many of these as you can before the exam to really get confident about the topic. Doing really well on the very first question of the exam is going to give you a huge confidence boost for the rest of the test.
This post works through Question #1 on the 2013 CFA Level 3 exam, a single-period return calculation. There are two main types of return calculations you could see on the individual portfolio management section (you will always see one of the two, so be ready). A single-period return is usually what is needed or earned for the next year to a stated retirement date. A multi-period return is usually something like the necessary return over remaining years to retirement.
This post covers Question #2 of the 2011 CFA Level 3 exam, an individual portfolio management question with a single-period return calculation.
Institutional Portfolio Management
While exam year’s prior to 2012 are no longer available to download from the CFA Institute, you can contact Finquiz for copies of exams used in blog posts. The post from April 5th of last year covers Question #3 on the 2011 CFA exam. Like individual portfolio management, you will always get at least one question on institutional portfolio management and it will always be directly after the individual PM questions. So if you are well-prepared for these two sections (indiv. and institutional PM) you can bank a lot of time and may be able to get easy points on up to a fourth of your exam score.
Another post covers Question #3 on the 2009 CFA Level 3 exam, an institutional PM question covering a company and a foundation.
This post covers Question #3 on the 2009 CFA exam, an institutional PM question for a defined benefit pension plan.
The material in behavioral finance has changed a little over the past several years so it’s a good idea to read through the questions quickly to make sure the content is still relevant to this year’s curriculum. This is a good idea when working through any of these questions, not just those in behavioral finance. This post covers Question #4 in the 2012 CFA Level 3 exam on biases and cognitive errors. Behavioral finance often comes up in the morning section so make sure you are ready to select and explain answers.
Economics is also often tested in the morning but fortunately a few concepts seem to come up frequently. Learn the various production functions and models in the curriculum and you should be ready. This post works through Question #4 on the 2011 CFA Level 3 exam.
The asset allocation material on the exam is mostly conceptual but there are some basic calculations you’ll need to know and may have to perform on an essay question. This post on Question #5 of the 2011 CFA Level 3 exam covers conceptual material on different allocation models as well as the ALM.
This next post covers Question #9 on the 2012 CFA Level 3 exam, a question on options with delta hedging and conceptual material on how gamma changes closer to expiration. I included an important point in the article, budgeting your time on the morning essay section. This particular question is worth 12 points from three parts, or about 3% of your total exam score. That is significant and not something you want to skip over but you have to be realistic about your time as well. For each essay question, the time you spend should correspond to the number of points available, i.e. 12 points equals 12 minutes. If you can do the question in less time it will allow you to spend more time elsewhere. If you haven’t saved up a lot of time on other questions, and feel like it is going to take you a long time to answer one particular question, you may want to move to another questions and come back to the more difficult one.
The worst thing you could do is spend all your time struggling through one or two questions and not have time to get to later questions where you could have easily gotten the points.
Notice that I spend more time on the blog working through the essay questions for individual and institutional portfolio management. Again, it is extremely important that you work as many of the questions from these two topics as possible. Not only will it mean picking up around a fifth of your total exam score, it will give you the confidence you need to do well through the rest of the exam. Being able to complete these two topics quickly will save all the time you need to get through some of the more difficult essay questions.
Contact Finquiz for copies of the 2011 and 2009 Level 3 exams needed to complete linked posts here. The 2010 exam is also available for review.
Good luck, just six weeks left to the 2015 CFA exams!
‘til next time, happy studyin’
Joseph Hogue, CFA