Level II of CFA Program Study Plan

The Level II CFA Program exam is considered by most to be the most difficult of the three exams. Whereas the first exam was largely conceptual and tested your basic understanding of a broad range of information, Level II CFA Program exam takes that same broad range but tests detailed concepts and data interpretation. On top of this, the exam is extremely formula intense. You will be responsible for calculating two and three-part formulas in almost every study session. There are strategies that will get you through all three exams and those that you will need to change for each test. We will cover those strategies and advice specific to Level II CFA Program exam here and hold the broader suggestions for a future post. Download Mock Exams for 2019 Exam Levels I, II and III by clicking here. We will also look at two different schedules in the strategy post that could aid in planning.

Weights and Basic Strategy:

Level II CFA Program exam consists of 20 item-set questions, each with six separate multiple choice questions that must be answered from information in an approximately one-page vignette. Each item set question will only cover one study session (i.e. ethics, quantitative methods, asset allocation, etc.) which makes it a little easier to concentrate on one topic at a time. As with all levels of the CFA, there are a total of 360 points possible, so each item set is worth five percent of your total points.

Practice exams and results

While the CFA Institute does not publish what the passing score is for each year, they have said that no score of 70% or above has ever failed the exam. What does this mean? It means you should be completing practice exams and aiming for a score of at least 75%. Your practice exams may not mimic the actual exam exactly, but shooting for a higher average will give you some breathing room when it comes to test day.

Item set question – Read questions or vignette first?

There are two schools of thought when tackling the individual item sets on the level II exam. Many candidates read through the six questions quickly to better understand the information for which they are looking. Other candidates start by reading the vignette, looking for information that may be important. After studying through the curriculum in preparation for the exam, you will begin to get a sense of what information is important for questions. Remember, you are able to make notes in your exam booklet, so be sure to underline or highlight numerical information or other important points to find them more easily while answering the questions.

Exam requirements | Which item-set questions to answer first on exam date?

You may want to complete those item sets first in topics in which you are stronger. This will do two things. First, answering a good portion of the questions quickly and strongly will boost your confidence for the harder item sets. Secondly, answering those questions you are more likely to get right will save time and book the easy points before moving on to the less probable points. Just remember to effectively watch your bubble-sheet answer form to make sure you are filling in the correct numbers.

Level II Preparation Tips, Practice & Time Management

Topic Weighting Differences on the Exam

Comparing the topic weights for the level II and the level I exam provided by the CFA Institute, there are a couple of things you should note.

  • Ethics is still a good portion of the exam, but not as much so as the level I exam. Your time spent here depends on part by how much you remember from the first exam and how well you did. If you got above 70% on the first exam and can score well on practice tests, then you will not have to study quite as much. Do not neglect the area because you will see it again on the level III exam.
  • CFA level II exam is much more heavily weighted towards asset classes than investment tools. The second exam is an analyst’s exam because you are going to spend a ton of time learning how to analyze the specific assets and investments within each. It is much more quantitatively intensive than the first exam.
  • Equity investments is the single biggest section and should be treated as such in your study schedule. Closely behind this is the Financial Reporting and Analysis section. Hopefully, you spent the time necessary to build a good base of knowledge in the three financial statements on the first exam. If not, you will need to review to be able to do well on FRA.

Ethical and Professional Standards, while not worth as many points as in the first exam is still very important. It is still a guaranteed 10% of your points, and you will see almost the same material at level III. I was able to reduce my time studying on the ethics portion of the level III to just looking over the new material because of my time spent studying for the other two exams.

Corporate Finance and Economics is again fairly conceptual though you will be responsible for some growth and emerging market formulas as well as dividend policy formulas. Summary sheets are often the best way to approach conceptual study sessions because you can outline the ideas and key points. This should get you the majority of points on the exam and free up study time for other areas.

Financial Reporting and Analysis is, with equity, your two ‘core’ topic areas for the level II exam. These two topics are worth between 35-55% of your total exam score. If you picked up a good base of understanding in the three financial statements at the first level, then the second exam is just detailing separate accounts and valuations. The readings here are extremely long and you will need to work through them. Do not expect to pick up the CFA Program study material with reading alone. The material is practice-based and you need to actively work through the examples in the books.

Quantitative Methods is slightly less important in the second exam and more so when you get to the third exam. The material here builds on some of the methods learned in the first exam. Do not neglect the section because you will get at least one item set, maybe two. You should be able to get the majority of the points by understanding the basic procedure in the formulas and any strengths, weaknesses, or biases.

Alternative Investments is slightly more important at the second and third level exams compared to the first, but still of secondary importance overall. The curriculum follows a finite set of ‘alternative’ assets (i.e. real estate, hedge funds, private equity, etc.) and each level builds in little more detail. While there are more calculations required in the second exam, it is still largely conceptual. Again, with conceptual topic areas, use a summary guide to learn the key points, strengths, weaknesses and biases.

Derivatives is also marginally more important on the second exam but extremely more quantitatively intense. You will confront some fairly lengthy pricing formulas here and will see between one and three item sets on the exam. For the formulas, first try to understand the logic behind the calculation to better memorize the formula. Often, working over practice problems is the only way to really convert the material to long-term memory.

Equity Investments is potentially the largest part of the exam with between four to six item sets. This and Financial Reporting & Analysis is where you really need to spend your time and learn the material. Working through practice exams, you should be aiming for at least 75% or higher going into the exam.

Fixed Income is also more quantitatively intense at the second level of the CFA exams. Many candidates are less familiar with debt instruments and do poorly on the topic. Begin with a basic understanding of the topic before you proceed to the detailed formulas. Do not neglect pricing and amortization of debt or some of the other formulas.

Portfolio Management  will set you up for the third exam where it is extremely important. Pay particular attention to the Investor Policy Statement (IPS) because it is pivotal to the third exam. Fortunately, much of the section is conceptually-based so you can get the majority of the points by understanding key points and ideas.

While you cannot afford to neglect any of the study areas in the level II curriculum, there are some on which you can spend more or less time. Ethics, FRA, Equity and Fixed-Income will account for upwards of two-thirds of the exam. If you concentrate your study time in these sections, aiming for a score of 75% or higher, you will have a very good chance of passing the exam.

You have a finite time before the exam so remember to use your study time efficiently. Take advantage of condensed study guides, summary sheets and flash cards to focus on the key concepts and formulas.

The Level II CFA Program exam is infamous for being the most difficult of all three CFA exams. Nonetheless, a well-thought out study schedule, proper understanding of concepts, rigorous practice of sample questions, and dedication and commitment can greatly increase the probability of passing the exam.

Few tips to follow before and during Level II exam of CFA Program


  • Start early, at least six months before the exam. Broadly review each study session to determine your familiarity with the topics. This will also help you in assessing the workload and formulating a convenient study schedule.
  •  It is mandatory to dedicate at least 2-3 hours a day to studying in an undisturbed and study-conducive environment.
  • Always remember to practice questions after completing an LOS.
  • Remember to review the material as you progress. Test yourself with a comprehensive practice exam at least once a month.
  • Try to finish covering all the material at least 1-1.5 months before the exam. Use this last month or so to revise the entire course at least two to three times. The key is to study effectively, manage your time, and retain the material you have learned over the past six months.
  • Attempt at least two full length mock exams 2-3 weeks before the exam. This will not only allow you to become used to writing two three-hour exams in one day, but will also assist you in managing time during the actual exam.

The Exam Day

  • Ensure that you understand the examination rules. Pack all items needed a few days before the exam. These would include sharpened pencils, a calculator, ID card/passport etc. Do not take any unnecessary items with you in the examination room as they will be a cause of inconvenience. It would be a good idea to check out the site where you will be taking the exam well in advance.
  • Make sure you have slept properly and are well rested the night before the exam. Revise all important formulas and ‘relationships’ (e.g. the relationship between callable bonds and interest rates) a day before the exam.
  • Have something light and energizing to eat for breakfast. Avoid taking too many liquids since you would not have time to take breaks during the exam.
  • During the mid-break, take a light snack. Try to relax but remember to remain focused. Avoid lengthy and dubious discussions with fellow candidates about the questions you attempted as it will be a futile exercise and may result in stress and panic. Just remember, you are still not over with the exam.

Attempting Questions

  • Manage your time. You will be required to attempt ten item set questions during each session (morning and evening).
  • Attempt the exam with utmost concentration. Invest in a pair of earplugs if you are easily distracted.
  • Start the exam with areas that you are proficient in. Always complete an area before moving on to the next. Do not push back a question as you will not have enough time to revisit it later. Do not recheck your answers even if you have the time.
  • When reading an item set, it is sometimes easier to solve each sub-part separately. If you have practiced well, you would know when one set of information has ended and the other has begun. Box all important information given in the vignette:
    • Look for key descriptive words, for instance, ‘leverage’, ‘guaranteed’, ‘riskless’ ‘open-ended, closed-ended’, ‘callable, putable’, words describing a time period like ‘short-term, intermediate term or long-term etc. Reading the vignette carefully will ensure that you do not overlook such details.
    • Sometimes an important concept/theory would be described in words; you may want to box and write its name next to it. If you have prepared well, your knowledge of the concept/theory will automatically flow in next.
    • Circle all numeric values and write a superscript stating what the values indicate. This will make it easier for you to form an equation and understand the context of the question. It will also help in identifying the ‘unknown’ values, and how they might be derived.
  • Once you have used a collection of information to answer a sub-part, it is highly unlikely that the same information would be used for another sub-part. This means that you may cast aside the information already utilized.
  • Sometimes the data might not perfectly fit a formula you have learned. In such rare situations, improvise, e.g. use D0 instead of D1 if no growth rate is mentioned or use the T-bill rate if no T-note rate is mentioned.
  • If you are unable to comprehend a question, try to make an intelligent guess as there is no penalty for guessing. It is unlikely that you will be completely clueless. The answer options can give you a hint as to whether you are thinking on the right track. This goes for both numerical as well as conceptual questions.
  • For statement questions, read the question regarding the statement before reading the statement itself, so that you know exactly what to look for. Generally you will have to determine:
    • The accuracy of the statement.
    • The reason for the inaccuracy of a statement.
    • A concept described in the statement (the question could directly address the concept or indirectly address it by inquiring about related concepts)
    • An unknown variable that could be calculated using the information in the statement.
    • Statement questions can be in a conversational format. While attempting such questions, remember to accurately identify the information that is being presented and address it accordingly.

Practice Questions

  • The key to knowing how to attempt the Level II CFA Program exam is to practice exam-like questions extensively. This will not only serve as a guide to attempt the examination but will also help in channelizing your approach towards studying the curriculum. The questions will tell you ‘how to study’.
  • Although practicing questions can help, remember not to overdo it. Solving questions without proper preparation will do no good. It is imperative that you understand an LOS completely and thoroughly before attempting the related practice questions.  By doing so, you will be better equipped to analyze your performance and know your strengths and weaknesses. As you practice further, you will start learning the different ways in which a specific concept can be tested.

Time Management

  • Time management is critical to your success. It is important to manage your time during the exam preparation as well while writing the actual exam.
  • While preparing, spend more time on the areas that carry more weightage, or those that require more practice.

Happy studying Joseph Hogue, CFA

CFA Program 2020/2021 - Levels I, II and III

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