Level II CFA Program Exam and Overall Strategy

Level II CFA Program exam still draws from the same 18 study sessions seen in the level 1 exam but with different topic weights.

The topic area weights for all three exams are shown at: Link
A couple of things you might notice:
1) Ethics!!!!! Learn Ethics! You saw it at I and will see it again at III. I cannot stress enough that the earlier you learn the ethics portion the easier all three levels will be. The CFA Institute has explicitly said that scores close to the cut off pass/fail are determined by how well you did on Ethics. LEARN IT!
2) All study sessions will be tested at least 5% but Financial Reporting & Analysis, Equity, and Ethics will be at least 45% or more of the exam. That is almost half the exam in just three topics! Cover all the material but make sure you master these three.
The volume and depth of information at level 2 is intense! I, along with many CFA candidates, feel it is the most difficult exam. The level 1 exam was much more an introduction, while the level 3 is more conceptually-focused and can be relatively easy if you master the essay portion. The CFA level 2 exam is very quantitative and analytically-focused.

Level II CFA Program Exam Format


The exam is split into morning and afternoon sessions each with 10 ‘item-set’ questions. Each item set question is about a page long scenario followed by six multiple choice questions. Each item set will only cover one study session topic like ethics, economics, equities, etcetera. Each question within the item sets will be worth 5% of the overall exam score.
This means there is a possible 360 points with each question being 3 points and each item set worth 18 points. The passing score is determined after grading all the exams at each level. 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. Check out the FinQuiz question bank for nearly 5,000 practice questions and 200 item set problems.
As with the other level exams, pass rates have been decreasing and range around 40-50% of candidates. Just as with the passing score determination, there are theories about why the pass rate is declining, but again does it really matter? You only need to be concerned with averaging above 75% on practice questions, nothing more. Focus on that.

Basic Strategy for Level II CFA Program Exam


Many providers will suggest that you read through the six item set questions then go through the scenario. This will give you an idea of the information for which you are reading. For example, if you see an item set question asking for the portfolio sharpe ratio then you know that you must look for the portfolio return and standard deviation within the scenario.

The strategy works like this:
1) Read through each question, highlighting and noting important data needed.
2) Start reading the scenario.
3) When you get to data or information needed to answer a question, you can either highlight it or immediately stop to answer the question.

Time is critical in the level 2 exam, especially if you are a slower reader. This strategy is a useful one (and generally recommended for most), but do not force yourself to do it if it does not suit you.
I knew that the strategy above was not appropriate for my style. I like to take each question separately and reading through all six at once wouldn’t help to remember the pieces of information needed. My strategy (as with above, don’t force yourself into a strategy, go with what feels natural):

1) Skim the scenario, highlighting and making notes for numerical information and stuff that might be important.
– After enough time studying, you get a fairly good idea of what information might be important.   For example, if the item set is on ethics and you read that someone is tipping off their aunt before significant news is released, then that will probably come up in a question.

2) Start with the questions, they are often in the same order as in the scenario. For each question you go back to the part within the scenario and pick out necessary details to answer the question.
** I have to stress that this will not be the best strategy for everyone. If you are not able to skim the scenario quickly and pick out important information, then use the other strategy and read the questions first. The important advice here is that no single strategy will work for everyone.

Do not think that you can approach CFA level 2 exam like you did the first exam. You must be comfortable with the item set format and understand HOW you are going to answer the questions.

After each study session, i.e. reading through a topic:
1) Complete individual questions, at least 20 or so. This will help to quickly test yourself on the material.

2) Do at least (2) item sets to test yourself on the material and get comfortable with the format.

3) Always, Always revisit the material the next day with another round of questions and an item set or two. This will help to solidify the material you learned the day before and turn short-term memorization into long-term memory. It will also help test how well you are studying and learning the material.

Good Luck. Looking forward to your questions and comments.
Joe Hogue, CFA

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