If you are reading this article, then there are high chances that you've already cleared the CFA Level I exam and have started your preparation for the CFA Level II. This article will help you understand the nuances of the CFA Level II exam.

While the Level I exam focused on the basic knowledge and comprehension of tools and concepts of investment valuation, Level II is all about the application of these concepts. Level II goes more in-depth into investment management and portfolio concepts, and tests your ability to apply these concepts to real-life scenarios.

Exam Structure

Similar to Level I, Level II also contains multiple choice questions. However, the questions are grouped into mini-cases called "item sets." Each item set consists of a case statement followed by six multiple choice questions. There are a total of 20 item sets, 10 in the morning session and 10 in the afternoon session. Within each item set, you will be required to use the information provided in the case statement to answer the questions.


What's on the CFA Level II Exam?

Exam Curriculum

For the Level I exam, the topic focus was on investment tools, with relatively less focus on asset valuation and portfolio management. For Level II, the topic focus shifts more toward asset classes, although the investment tools are still weighted rather high. In terms of learning, the Level II exam focuses on the application and analysis of concepts learned in Level I.

The curriculum consists of 10 topics that are grouped into four areas: Ethical and Professional Standards, Investment Tools, Asset Classes, and Portfolio Management and Wealth Planning.

The following table shows the weightings of these topics and broad areas for the Level II exam.

Topic Area Level II
Ethical and Professional Standards (total) 10
Investment Tools (total) 30-60
Corporate Finance 5-15
Economics 5-10
Financial Reporting and Analysis 15-25
Quantitative Methods 5-10
Asset Classes (total) 35-75
Alternative Investments 5-15
Derivatives 5-15
Equity Investments 20-30
Fixed Income 5-15
Portfolio Management and Wealth Planning (total) 5-15
Total 100

Let's take a brief look at each of these 10 topics.

Topics on the CFA II Exam

Ethics and Professional Standards

This section covers the code of ethics, professional standards and the global investment performance standards. Ethics is one section that is equally important in all of the three levels. The questions will be aimed at the application of the seven standards in professional situations. Other important topics are the soft dollars and Research Objectivity Standards (ROS).

Quantitative Methods

You can expect about one to two item sets from the quants section. The case statement will most likely present data, for example, regression and ask you to analyze and interpret the data. You may even be asked to calculate some key metrics based on the data provided.


Similar to quants, economics is also a small section in Level II. You can expect one item set for this topic. You need to have a good conceptual knowledge of economics, as many of these concepts can be tested along with other topics. One important concept is foreign exchange and you are likely to be tested on the application of its concepts.

Financial Reporting and Analysis

Financial reporting and analysis represent a large portion of the exam. You can expect about four to five item sets from this section. The important concepts are accounting for inventories, accounting for long-lived assets, accounting for leases, inter-corporate investments, accounting for acquisitions, variable interest entities (VIEs) and financial reporting quality. You are more likely to be asked item set questions based on a combination of these concepts. You need to learn the processes and principles and practice their application thoroughly. Understanding the nuances and differences in IFRS and U.S. GAAP is critical.

Corporate Finance

Corporate finance is an important but easy to handle subject. The concepts in corporate finance are linked with the financial reporting and equity sections. So, the questions may be combined with material from the other sections. The key concepts include capital budgeting, capital structure, dividend and repurchase policy issues, corporate governance and mergers and acquisitions.

Portfolio Management

You can expect one or two item set questions from portfolio management. The material in this section is huge, and it may be wise to keep this section for the end. Remember that the portfolio management material will get deeper in the Level III exam, so it's a good idea to have a general understanding of concepts here. You will be tested on portfolio theory, market efficiency, and asset pricing concepts.

Equity Investments

Equities is an important section for financial analysts and you can expect about four to five item set questions from equities. There is a lot of material on equity analysis and valuation methods. Note that the equity section is heavy on formulas and you may be asked to perform formula-based calculations and interpretations.

Fixed Income

Fixed income is a small but important part of the exam similar to corporate finance. Given the recent financial crisis, this section has become even more important. You can expect one or two item sets on this topic. Like equity investments, fixed income is also heavy on formulas and some of the concepts are quite complex. Key concepts include credit analysis, term structure, bonds, mortgage-backed securities, and their valuation.


This is a more challenging section and you can expect at least two item set questions from derivatives. The material covers futures and forwards, options and swaps. Within derivatives, you should be familiar with currency forwards, interest rate futures and forward rate agreements. In options, you need to understand the options strategies and the models for pricing option contracts. In swaps, you should be able to interpret a swap transaction and figure out the cash flows to the parties involved.

Alternative Investments

This section covers asset classes other than equity and fixed income. The three asset classes, which are a part of the CFA curriculum, are real estate, hedge funds, and private equity. There will be one or two item sets questions from this section. This is a relatively easy section and can help you get that additional score without getting into complex stuff.

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Exam Details

Time Limit:   6 hours
Cost:   Varies
Number of Questions:   20 item sets, 6 multiple-choice questions for each set
Passing Score:   Varies Anually
Passing Rates:   As of June 2012, 42%
Format:   Item Sets
Prerequisites:   Passing grade on CFA Level I exam, and a U.S. Bachelor's degree or equivalent.
Corequisites:   Three years of qualifying work experience must be obtained.
Exam Date(s):   June and December
Exam Results:   Usually provided within 90 days
Offical Exam Website:   CFAInstitute.org

The Bottom Line

The CFA Level II exam is fairly difficult and asks you to apply concepts, rather than just understand them. So, it's critical that you spend time on practicing and taking sample tests while reviewing the areas where you are weak throughout your preparation. Best of luck on the exam!