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Step-by-Step Guide to Passing the Level II CFA® Exam

By: Kaplan Schweser
January 11, 2021
Two candidates studying for the CFA exam

Now that the CFA® Level I exam is behind you, it’s time to set your eyes on the next prize: Level II. Here are the steps you can take to prepare for it and pass.

Step 1: Familiarize Yourself with the CFA® Exam Level II Curriculum

The Level II curriculum covers these topics:

  • Ethical and professional standards
  • Quantitative methods
  • Economics
  • Financial reporting and analysis
  • Corporate finance
  • Equity valuation
  • Alternative investments
  • Fixed income
  • Derivatives
  • Portfolio management

These topics are weighted—some have more weight than others, and the weights are all variable. The ones with the most weight are ethical and professional standards, equity valuation, fixed income, and financial reporting and analysis, so you should be sure you are really on top of these topics. Otherwise, it will be very difficult to pass the exam.

As you study, you should also be aware that unlike Level I, which focused on investment, Level II focuses on valuations.

Step 2: Learn the CFA Exam Level II Question Format

At Level II, the exam is organized in the form of item sets that can focus on one topic or combine several. Each item set consists of related questions. These related questions are preceded by a short vignette that gives you information needed to answer the questions. For example, an item set from ethics and professional standards will cover that topic.

The item sets are divided so that there are 10+ in the morning session and 10+ in the afternoon session. Knowing this format will help you start thinking along those lines as you study. Another important thing to remember is that quantitative methods can consist of one or two item sets. That introduces some mystery to the process when compared to Level I. It’s also why you need to have the topic areas down—there’s no gaming the system.

Step 3: Know the CFA Exam Level II Pass Rate, and Use It to Your Advantage

The Level II pass rate is usually in the 43—47% range. (Get the most recent pass rate here.) Instead of being discouraged by the fact that less than half of those who took the exam passed, use it to energize your preparation. If you haven’t already, you should start studying for it right away and put in more than the 300 hours that are recommended as a minimum needed to pass. Dedicate as much of your free time as you can to studying, and don’t let up until you walk in the door of the testing center. In short, start early, and don’t delay. Consider an exam prep package because surveys show that the pass rate for Level II is higher for those who do.

Looking for more help with passing the Level II CFA® exam? Check out our CFA Exam Level II study packages.

Step 4: Exercise Your Analytical Skills

In addition to the variable weighting and the vignette question format, there are other important differences between Level I and Level II. Know them well. The first is the integration of different topics. For example, a vignette related to equity valuation could have a question about dividend discount models, a question about price multiples, or even a question about the cost of capital.

Another difference is that Level II tests analytical skills. The expectation is that you are going to be an analyst. Memorization, therefore, will not get you far. As you study and answer practice questions, ensure you understand what you are doing, and be ready to demonstrate your analytical abilities by answering questions that are written appropriately.

But the main difference is that Level II has much more material. You’ll be reading a lot more, and your depth of understanding will be have to be much greater. Again, this is why you need need to allocate an appropriate amount of time for studying.

Step 5: Learn from Your Mistakes

CFA Institute expects you to focus on the Learning Outcome Statements (LOS), and they will be holding you accountable for them. Make sure that your understanding of the material is consistent with its underlying LOS. So, when it comes to preparing for the exam, you must go past the process of learning the material and get to a point where you understand it. Ask yourself, “Why does this make sense?” If you are able to answer those types of questions, it increases the staying power of the underlying material that you’re learning.

There are some good methods of studying to help you focus on the LOS. One way is through self-explanation or by pretending you’re the teacher who has to explain to a student. Interleaved learning is another. This is the process of taking breaks so that you’re not trying to learn or practice large quantities of material all at once. Interleaved learning can morph into distributed practice, which is spreading learning over a long period of time rather than “cramming.”

Remember, the most important and effective way to focus on the LOS is to practice. Take quizzes, do problems, put pencil to paper. And if you make a mistake, that can be used to your advantage. Your brain will flare up and recognize that this is the kind of mistake that can be made, and the result is that you’re unlikely to repeat it.

Step 6: Watch the Tutorial

In this tutorial, Dr. BJ Tolia, CFA, CA, shares his insights about the 2021 CFA Level II exam, along with advice, best practices, and test-taking tips that can help you prepare and increase your odds of passing the exam. 

Just click the image to start the tutorial.


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