The Ten Commandments for CFA Level IINow that you've nailed Level I, you're all ready to go for Level II. However the exam isn't exactly the same song and dance as before. Level II is reputed to be the most challenging and covers the most material, and you need to know all the little surprises beforehand if you want to prepare effectively.

Again, as per the Level I commandments, the Level II commandments are the result of experience - lots and lots of it. Study it carefully and you will have leap-frogged over a chunk of Level II candidates already in terms of preparedness, even before you begin revising. Exam-day tips will also may make the difference between a pass and a fail.

Here are the top 10 things you should know and adhere to as a Level II candidate.

#1 - This is Not the Same as Level I.

You've passed Level I, and some of you might have found it fairly easy, even. Level I can be easy for some especially if they have a good grounding in finance back in university, or because of the context of their work. A big mistake would be to assume Level II is a continuation of this.

Not only it is not, but most candidates that have taken the Level II exam comment about how disproportionately tougher Level II is compared to Level I. I believe this is the main fallacy of candidates who end up not passing - by taking the exam lightly (and by lightly I mean assuming the level of effort you committed to Level I would be enough) and not realising their mistake until it is too late in the preparation process. There is a huge amount of material to cover and you need to be more prepared than before.

#2 - Start Earlier.

I advise to start earlier than you did for Level I, in order to assess for yourself how much time you would need to prepare. If after an overview of the contents you decide that you don't need to start that early, by all means start later then. But getting an overview of what's ahead of you early in the game will give you the option to decide to commit more study time should you need it. When sizing up the material also pay attention to the weightings of the topics, and if a topic you're particularly weak in is showing up heavy in Level II, that is also a sign to get serious sooner.

#3 - Basics of Level I Will Be Needed.

Remember the topic you didn't quite get in Level I, and as the exam approached you thought to yourself "right, I'm just going to memorize everything and eject it all out during exam day, to

hell with understanding the concept"? yeah, that topic's coming back all new and improved to Level II.

Many concepts in Level II build on basics that are outlined in Level I, so having a good grounding in Level I helps. Some study materials (e.g. Schweser) include a Level I refresher booklet specifically for this purpose - I recommend hanging on to that. If not, a condensed version of Level I notes (such as Schweser's Secret Sauce or Elan's Eleventh Hour) would work as well.

#4 - Item-Set Rule I - Understand the Item-Set Format.

If you remember, Level I is 240 independent questions across 2 exams. Level II will be 120 questions in 20 item-sets across 2 exams. One item-set consists of one vignette (or case statement) and 6 questions about the case discussed.

Less questions is better, right? Not necessarily.

Although you will have twice as much time per question compared to Level I, reading through the vignette will take a lot of time. The vignette will have significant amounts of redundant information carefully inserted in, designed to confuse the candidate and will take up additional time to sift through. But with practice you can learn to size up the whole item-set as a whole and quickly discard irrelevant information. Reading through the questions first before the vignette helps massively.

#5 - Item-Set Rule II - Questions Can, and Will Be Harder.

Adding to the fun, as the questions are now part of a 6-member family, you will see all kinds of nasties such as interdependent questions (e.g. question 10 that depends on you getting question 9 right), and it also means that questions will be much more in-depth than Level I, as they have the vignette to include more context to the question.

#6 - Item-Set Rule III - It's Better to be a Know-It-All.

Thirdly, item-sets usually focus around a particular concept. This means that compared to Level I, the diversity of the questions will be much, much less - 240 independent questions in Level I versus only 20 item-sets in Level II. In Level I, if you discarded a particular concept because it wasn't making sense to you and it came out in 1 question, that was okay. If a skipped concept reared its ugly head in Level II, that's potentially the whole item-set of 6 questions down the drain, which by the way are worth twice the points of a question in Level I. So take the time to try and understand as much as possible, and resist the temptation to skip topics too often. I guarantee you it will be worth it.

Summing up item-sets - they are a new set of beasts that are best understood earlier in the process than later. Spend some time getting to know the format as you're ploughing through the notes and thank me later.

#7 - Know Your Topic Weightings.

Know and understand the topic weightings for Level II - they are outlined as below. Yes, I know they don't potentially add up to 100%, but that's because some questions can cover more than one topic.

Ethics - 10%

Investment Tools (Corp Fin, Econs, FRA, Quant) - 30%-60%

Asset Classes (Alt Invs, Derivatives, Equity, F.Income) - 35%-75%

Portfolio Mgmt and Wealth Planning - 5%-15%

This is helpful, but much more meaningful when viewed in the context of potential item-sets:

Ethics - 2 item-sets

Investment Tools (Corp Fin, Econs, FRA, Quant) - 6-12 item-sets

Asset Classes (Alt Invs, Derivatives, Equity, F.Income) - 7-15 item-sets

Portfolio Mgmt and Wealth Planning - 1-3 item-sets

This means that Investment Tools and Asset Classes will be the ones to beat here. Opinions on the tough ones to beat vary so evaluate them for yourself, but the topics with most weightings within them are FRA and Equity so make sure you put effort into nailing them - together they can account for more than half the exam.

#8 - Don't Be Shy.

With the amount of material to be understood, there will be areas where even after hours of reading up on it, you still haven't a clue what it means. If you're used to being an overachiever this can be a blow to your ego. Do not let pride get in the way - if you don't understand something reach out and you will save valuable time instead of trying to understand on your own. AnalystForum is excellent for this - trawl through past tips and chances are it has been covered, but if it hasn't feel free to post questions, or just reach out to me. Sometimes a simple, informal way of explaining it is all you need.

#9 - The Commandments From Level I Will Apply.

Just because you're now attempting Level II doesn't mean that you should ignore the Level I rules. With the exception of Level I rules #1 and #3 (which are already covered & updated above), almost all rules from Level I should apply.

#10 - Venture Forth and Kick-Ass.

Level II is the traditional phase where candidates despair - on one hand they've passed Level I and don't want to waste that effort, but on the other hand they have 2 more exams to go, and in the middle of reputedly the toughest at that. Despairing is common, but not all that useful.

Know this - the pass rates for Level II are generally higher than Level I, so assuming you've done your best to prepare, you should have a higher chance at passing. So don't despair, and continue being awesome.

How to Pass the CFA Level II Exam

The Level II CFA 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, the second 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 the Level I CFA 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.

Format and Basic Strategy:

The Level II CFA 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.

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.

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.

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.

Topic Weight 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.

The level II 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 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 is only slightly more important on the second exam but 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.

Wrapping up the week, we will look at strategies that should help on all three exams.

‘til then, happy studyin’

Joseph Hogue, CFA

The Level II CFA Exam and Overall Strategy

Posted on March 14, 2012 by josephhogue

The level II Chartered Financial Analyst 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:

http://www.cfainstitute.org/cfaprogram/courseofstudy/pages/topic_area_weights.aspx

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 level 2 exam is very quantitative and analytically-focused.

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 100 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 the 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 the level 2 CFA 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.

That’s all for now. Next week we’ll start talking about specific topic areas and things to look for on the CFA level 2 exam. Friday’s post will cover the most important advice I can offer on HOW to study. Don’t miss it!

My CFA Level 2 Exam ExperienceAfter 4 months of intensive study, which I ought to do after experiencing Level 1 exam, I am glad that I scrap through my Level 2 exam. Though I not did as well as Level 1, I am just happy to have move forward. Here are my thoughts about what I have done and what I should have done.

1. This time, I did not sign up for FCIS as after calculating the sponsorship and the task to clock attendance, I realized that I am better off just getting the Stalla Guides. I purchase the Stalla guides because of the DVD lectures by Peter Olinto. However, this time, I fully depend on the Stalla Study Guides as these guides are excellent in their summarization of the essentials. Besides they are written in a way which I found i could easily comprehend. I have no other guides and hence I can't comment on others

2. Stalla Passmaster again. The questions in the DVD help pretty much for me to reinforce my learnings and yes, one definitely have to go through them.

3. Noting that in Level 1, as there are 10 studies, similar in Level 2, I realized that I tend to forget what I learned what I read in the earlier studies mid way through the studies. So this time, I scheduled my study sessions well. First part, a run through of the 10 topics which took me around 2 months plus. Then a 2nd round, however, with categorization of topics that overlaps to make sure I did not forget the earlier studies by applying them in the later studies. Also I did questions on the earlier study almost every day just to keep myself refresh. That take me around a month plus. The last few days are mostly on Ethics and just doing questions, not forgetting the mock questions as well.

4. Last but not least, never never lose your Confidence.

I couldn't think what else I could have done further except if I have started earlier. After getting my Level 1 results on 26 Jan, to the exam date on 5 Jun, I have only 4 months to complete the 10 studies. This time I have at least 10 months and hence no more complains about time. But again, this is Level 3 which may require more time and I have yet to get started. What I am doing different this time is apply what I learn in Level 1 and 2 and new findings in Level 3 curriculum on building a portfolio.

CFA LEVEL 2 TIPSCongratulations with passing the first CFA exam! Don’t get overexcited yet: although the passing grades for the CFA 2 exam are usually higher than CFA 1, the people you are competing with will be better and also more motivated (as like you, they are beginning to see the end of the tunnel!). Here are my top tips starting with nr 7:

#7 Learn the economics formulas by heart

Economics has always been a foggy topic in CFA and this is also the case in the level 2 exam. Try to get a grip on the exchange rate and bid-ask calculations and learn the formulas! I didn’t do the latter and found out that reasoning which direction an exchange rate goes is far easier at home then under exam pressure! Hence, learn these formulas by heart, write them down during the exam, and fill in the inputs to derive the correct answer: i.e. treat this section as a level 1 exam!

#6 Check on internet for Quantitative Methods (QM) Excel applications

QM should be relatively easy in the level 2 exam so make sure you don’t underestimate it and get into a lull. You will soon have mastered the practice questions, so how to improve your knowledge?

The internet is an excellent source to get the edge and avoid any overconfidence and keep

Input into Excel regression

on learning: YouTube has some nice Excel videos on regression analysis, and there are lots of excel spreadsheets you can download that will explain regression analysis. Using the internet will not only improve your understanding of regression analysis for the exam, but will also help you implementing it in your work if you ever need it. It is easy to become overconfident on QE so ensure you do the exercises and are able to score well on this section

Output Excel regression analysis

#5 Focus on the additional ethics sections

Compared to the level 1 exam, additional materials are added to the ethics section which has a good chance of being the main focus on during the level 2 exam. Ethics remains a tricky topic as no matter how many questions you prepare, CFA Institute will come up with new ones during the exam. Nevertheless, you should have the basic ehtics section from CFA level 1 under your belt now, so focus on the additional level 2 ethics sections.

#4 Start early with the Forward Rate Agreement (FRAs) calcs

Just when you are about to finish your revision, CFA has a nice little surprise for you: calculating FRAs is a real pain especially when continuous compounding is assumed and although questions on this topic are rare, it is better that you know how to approach them. Again, practicing questions at an early stage is recommended and combining the FRAs calculation exercises with the more reading based Financial Reporting and Analysis section might be the ideal combination.

#3 Start early and spend lots of time on the equity dividend discount and free-cash flow models

Although I have a strong math background, I struggled with the equity models in level 2: doing these calculations on a calculator instead of in Excel still feels quite unnatural and hence it took me a while to become fully comfortable with the different types of discount models.

Practice exercises frequently and early on in your revision. The same principle applies to the free cash flow models which you will also be able to conquer as long as you start early and develop experience and insights over time. Don’t get frustrated at first when you are struggling: it took me about 1.5-2 months before I was fully comfortable on these items!

#2 Spend more time preparing than for CFA 1

As I was in-between jobs when preparing for the level 2 exam, I spent much more time on level 2 than on the level 1 exam. In hindsight, I can recommend you do the same: your “opposition” (other candidates) will be much tougher this time and you will require more time to become familiar with the calcs under 3 and 4. Also, when you fail this exam, you have to wait another year for a re-sit which should provide you with enough stimulus to start early, work hard and do well during level 2!

#1 Make the difference with Financial Reporting and Analysis (FRA)

You can excel on the level 1 FRA section by knowing a billion financial ratios by heart: level 2 is quite different and there is a less clear steer what they expect you to know. However, I believe FRA is the break-it or make-it section in the level 2 exam as there are lots of points to earn and you can beat the competition that are less clear how to prepare.

As the section is less quantitative than most others I would recommend reading different sources of information to remain interested as this section can become rather dull: read your abbreviated study materials a couple of times (2-3) and go through the CFA reading materials once (I know they are chunky and not the most interesting reading materials!). Also have a look on the internet for additional information. Make summaries of what you have read to increase your knowledge.

FRA level 2 was long a mystery to me but when you do plenty of reading, things will eventually come together! Do the same and get ahead of the rest of the pack.

Hi Mona, I would like to share with u my successful experience in studying and preparing for my CFA Level 2 exam.

First of all allow me to thank you for setting the guidelines for me when i first started my journey with level 1, you told me whenever i finish a book to read all previous books once again before moving to the next book! And that’s what i have been doing for both level 1 and level 2.

I used Schweser to prepare for level 2, and solved CFAI end of chapter questions after finishing each Schweser reading. I started preparing for my June 2011 exam from December 1st, 2011, and using this method i moved in slow, but steady steps towards reading the whole curriculum. I finished the material 2 weeks before the exam day!! But i didn’t bother with reviewing because i already read all the books more than once.

I did the CFA mock exam and got disappointing results (as i did in level 1 mock) and used the remaining time (9days approximately) to focus on my weak areas using Q-Bank questions.

A point i need to emphasize here is that i didn’t use Q-Bank as extensively as i used it for Level 1, for one reason and that’s the lack of time. Level 2 was so challenging and at times i felt so down and just wanted to drop out, but kept reminding myself that after June 4th it will all be over and I have to give it my best so i don’t leave any room for regrets.

To sum it all up: Schweser + CFAI EOC is the magic words for passing level 2.