Level III CFA Program Essay Questions Guide

Arriving at level III exam for the CFA charter is an accomplishment in itself.

With a fail rate of around 50% at each level, you have made it where approximately 75% of candidates could not.

While the final exam is not one to underestimate, there are some strategic decisions that will make it easier.

There are strategies that will get you through all three exams and those that you will need to change for each test.

Download Mock Exams for 2019 Exam Levels I, II and III by clicking here.

We will cover those strategies and advice specific to Level III CFA Program exam here and hold the broader suggestions for a future post.

We will also look at two different schedules in the strategy post that could aid in planning.

Contents, Format and Basic Strategy:

Level III CFA Program exam can be the most intimidating for some because of the essay questions.

Unlike the other two levels, you will be asked to take the concepts in the curriculum and develop your own recommendations and solutions.

This can be tough for a lot of people and will almost certainly test your ability to manage time during the test.

The good news is that the essay section does not have to be overly difficult, you just need to follow some basic preparation strategy.

I was actually pretty surprised at how easy it seemed compared to what the monster I had built it up to be before exam day.

Level III CFA Program Exam – For those that can put everything together!

CFA level 3 exam is more conceptual and practically-based than the other two exams, making it easier for those that can put everything together.

The morning session of the Level III CFA Program exam has a maximum score of 180 points and will include 10-15 essay questions with as many as 7-8 separate questions within each.

Some questions will require that you write on lines directly under the questions, other questions will be answered in a template box on another page.

Do not answer the ‘template’ box questions directly under the question on the exam.

It will not be graded! It can be confusing answering some questions directly below while others are answered on separate pages so you want to go through and draw a line under the ‘template’ box questions so you are not tempted to put your answers under the question.

Level III CFA Program and time management

Time is many level III candidate’s worst nightmare, but it doesn’t have to be. Just because you have five lines or a three-inch by three-inch box in which to answer does not mean that you must use this entire space.

Nor does it mean that you cannot use bullets! Graders are not looking for spelling or grammatical ability, only that you understand the curriculum and can put together a solution.

Level III CFA Program – Topic Weight Differences on the Exam

Comparing the topic weights for CFA level 2 and CFA level 3 exam provided by the CFA Institute, there are a couple of things you should note.

  • First, it is much harder to concentrate on ‘core’ topics because the Institute rolls up many of the topics into Portfolio Management.
    This means that, while the percentage weights for Investment Tools shows a zero weighting, these sections are still tested within the 45-55% of the exam under portfolio management.
  • The topic weight ranges in Asset Classes is fairly wide and difficult to draw conclusions as well. Fixed Income is given a slightly higher weighting, but only on average.
    You are guaranteed of seeing at least one essay or item set from each topic, but could get more.
    This, combined with the fact that no clues are given as to which subjects within each topic are more important, means that you must cover these topics fairly broadly as well.

Level III CFA Program Exam and last three years’ essay exams

Fortunately, CFA level 3 exam revolves around the essay questions and the Institute makes available the last three years’ essay exams for practice.

While the Institute changes the questions each year, practicing these essay exams is a great start to building your confidence and understanding of the material.

Level III CFA Program – Which questions to be answered first?

As with CFA level 2 strategy for item set questions, you may want to answer those essay questions which you feel strong in the material.

This will get you the points you know, will help you bank some time and help your confidence.

What I mean by ‘banking’ some time is that you will be able to do those questions you know in less time than the allotment leaving you more time for the more difficult questions.

Do not spend too much time on relatively low-point questions within the essay section.

Time is a problem for many candidates, so If a question is only worth a few points it doesn’t make any sense spending 15 minutes trying to get it right.

Spend time on the higher-point items and the easy ones, then return to unanswered questions if you have time.

Another critical point on the essay section is to show your calculations when the question asks for it.

The graders are allowed to assign partial credit for correct procedures or partial answers.

If you do not show your calculations in the exam booklet, not only will you not get partial credit you may not even get credit for correct answers.

Ethical and Professional Standards is off less importance on the last exam but still two item sets in the afternoon. You should have a good understanding of the Standards, so spend some time understanding the new material and move on to other topic areas.

Economics is again fairly conceptual section other than a few growth and market valuation formulas. The topic is also secondary, so make sure you understand the key points and reasoning then spend your time on other areas.

The asset classes (Alternative Investments, Derivatives, Equity Investments, Fixed Income) are also much less quantitatively intensive at the third exam but still include quite a few formulas. The impetus on the third exam is how these asset classes fit together in a portfolio.

A large section is devoted to risk management and how the asset classes each have different fundamentals. Be sure to understand return drivers and risk characteristics for each class.

Focus of Level III

Portfolio and Wealth Management is the focus of CFA level 3 exam.

Your first two essay questions in the morning will be individual and institutional wealth questions. While these specifics of these two questions vary from year to year, there are a limited number of topics that are tested.

This makes it extremely important to practice the old essay questions to get a feeling for what and how questions are asked.

Key in this section is the Investor Policy Statement (IPS) and its components.

Spend as much time as you need to master this section because it will be big points on the exam. Understand the differences in risk and return needs for the institutional investors as well as their differences in IPS constraints.

Past essay exams

The biggest aid here is again the past essay exams posted by the Institute. Besides the exams, also available are guideline answers.

These are important to get a feel for what the graders are looking for within the questions. Study the answers in detail to see what information you need to write in your own answers.

The essay section of the CFA Level III exam is one of the toughest for candidates but you can use past exams to get an advantage

Ask CFA candidates which is the most difficult part of the Level III exam and they will almost unanimously say the essay morning section.

The essay portion of the Level III CFA exam is so widely feared that it shows up as one of the top answers when candidates are asked about the most difficult part of all three exams.

The irony is that the essay portion could end up being one of the easiest parts of the CFA exams.

I couldn’t wait to tackle the morning section on the Level III exam because I knew exactly what to expect and that I was going to score big points.

You can go into the third CFA exam with just as much confidence. It all comes down to using one of the best resources made available by the CFA Institute.

When else has the CFA Institute given you the answers?

It’s not even a secret but too many candidates don’t know that the CFA Institute releases the actual morning essay section along with guideline answers.

That’s not mock exams or practice tests but the actual essay exams that were given in prior years and the answers that would have gotten you full points.

Normally, the Institute releases the last three years’ exams for download along with a separate download of answers. Click through here for the Level III exam prep page and copies of the past exams.

Not only does the page include downloads for the last few years’ essay questions but also a brief summary of the exam structure and timing.

The essay section of the Level III CFA exam consists of between eight to 12 questions, each with between two and five sub-parts.

Each question and sub-question can be worth a different amount of points but the entire morning session is worth 180 points.

In no other place does the CFA Institute give you so much help on the exams. Download every previous exam available and use it as a mock exam.

Not only will it help you learn the curriculum but you will become more comfortable with the essay section and writing for three-hours straight.

We’ve covered several essay questions from previous exams, click on the Level III posts category and scroll through a few.

How to Pass the CFA Level 3 Exams

Since the curriculum changes a little every year, questions from many years ago may not be as relevant so always make sure you check to make sure the LOS of the previous exam’s question is still included in your curriculum.

Focus most of your study on the portfolio management questions, always the first two or three questions on every exam.

The LOS and required calculations for these don’t change much and doing really well on these first few questions is going to give you a huge confidence boost for the rest of the exam.

Pay attention to how the guideline answers are structured for the previous exam questions. You can save a lot of time and still get full points if you learn how to express your answer with bullet points.

As with the rest of the CFA exams, follow instructions exactly. If an essay question asks that you list two reasons, only write out two reasons.

You will only be graded on the first two reasons (or however many are required) so writing out other answers is a waste of time.

The guideline answers are not necessarily the only answer you could have provided for credit but is just a blueprint of the answer for which the grader was looking.

Remember, there is partial credit in the CFA Level III essay portion so write something out for every question.

Even if it is a multiple part question and you don’t know all of it, write out what you can and show your calculations.

Again, follow directions and show your calculations! Even if you get the final answer wrong, you may still get some points if you were on the right track.

Some of the essay questions will require that you write the answer out directly under the question while others may refer to another page for the answer.

Make sure you follow these directions. I wasn’t paying attention and put the answer to some of my essay questions directly below the question instead of on the appropriate page.

Fortunately, I had enough time that I was able to copy the answers to the right page but not everyone is as lucky.

The Level III essay portion of the CFA exam does not have to be as scary as candidates make it out to be. Study the prior exams and take advantage of this huge gift from the Institute.

Work at least three of the prior essay exams and you’ll be way ahead of many candidates and ready to tackle the CFA essay exam with all the confidence you need!

In past years, we’ve posted quite a few reviews of previous essay questions from the Level III CFA Program 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 past 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 new questions, I thought we would highlight prior essay questions this year to give you a good resource of practice problems.

A post in the past looked at topics that typically show up on the morning section of the Level III CFA Program 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 Level III CFA Program 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 Level III CFA Program 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 Level III CFA Program 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 Level III CFA Program 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.

Behavioral Finance

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 Level III CFA Program 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 Level III CFA Program exam.

Asset Allocation

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 Level III CFA Program exam covers conceptual material on different allocation models as well as the ALM.


This next post covers Question #9 on the 2012 Level III CFA Program 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.

An email from a Level III candidate led me to write this post.

The candidate’s question was about accidentally answering a templated question in the wrong space. Should the answer be scratched out and rewritten, or relabeled?

The short-answer is, draw a single line through the answer and rewrite it in the correct space if possible.

If this does not allow enough space for the intended question’s answer, then you may create more space by drawing another template (as in the Institute’s response below).

This is just one of many questions you may have on the essay portion of the level III exam. Fortunately, the Institute makes it easy to find answers.

The link below is to the Institute’s page on exam formats. Clicking on one of the format types will drop down general tips and details. It is a pretty quick read and includes some important notes.
CFA® Exam Information

Below is the link to the Institute’s FAQ index, followed by a couple of FAQs for ‘grading and results’ of the level III exam.

It will take a little longer to skim the questions and answers, valuable time you should be spending studying, so I would only refer to the page if you have a specific question.
Frequently Asked Questions

On the Level III exam, I wrote my answer on a lined answer page instead of on the template. Was my answer graded?

CFA Institute grades answers that are written on pages labeled for a specific answer, regardless of whether you used the template provided. You will not be penalized if you did not use the template.

Be reminded, however, that you waste valuable time by redrawing a template that is already provided for you. Instructions in bold print immediately following a question will direct you to the page numbers of the template if a template is provided.

Candidates should answer on the templates provided and should follow the instructions given in the template. Answers written on the question pages or on the pages marked “Intentionally Left Blank” are not graded.

I wrote in the margins of my essay book. Will this cause problems with scoring my exam?

Writing answers in the margin will not affect your scores; your answers will be graded. The only answers not graded are those written on question pages or pages marked “Intentionally Left Blank.”

Do not get too stressed out about where to write your answer or other semantics of the exam. Pay attention to instructions and templates.

When in doubt, label your answers with the question number. If you finish the morning session early, then go back through to make sure that answers are in the appropriate space.

While spending time reviewing the policies and details of the exams may help to ease your mind a little, it will ultimately do nothing to help you pass the exam. Use the links above to answer your questions quickly, then get back to studying.

‘til next time, happy studyin’
Joseph Hogue, CFA

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

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