CFA Level II study guide
CFA Level II · Work through your exam, one topic at a time.
The CFA® Program Level II exam is the second of three levels in the CFA Program, the chartered financial analyst credential administered by CFA Institute. It is aimed at candidates who have already cleared Level I and want to move toward the charter, and it is built for people preparing for roles in investment analysis, valuation, and portfolio management. The CFA Level II study guide has 10 sections and about 3,408 words.
01Ethical and Professional Standards
Level II tests the Code and Standards through vignettes: a fact pattern, four choices, a decision. Learn the seven standards by function - I Professionalism; II Integrity of Capital Markets; III Duties to Clients; IV Duties to Employers; V Investment Analysis, Recommendations, and Actions; VI Conflicts of Interest; VII Responsibilities as a CFA Institute Member or Candidate - then ask which duty the conduct touches.
356 words, about 2 min02Quantitative Methods
+ bkxk + e by ordinary least squares. Interpret each slope as the effect of a one-unit change in that independent variable, holding the others constant.
327 words, about 2 min03Economics
Level II tests the parity relationships as a linked set. Covered interest rate parity is a no-arbitrage identity: F/S = (1 + r price currency)/(1 + r base currency).
315 words, about 2 min04Financial Statement Analysis
Below 20% ownership with no significant influence: fair value through profit or loss, or through OCI. At 20-50% with significant influence: the equity method, a one-line consolidation carrying the investment at cost plus share of earnings less dividends.
380 words, about 2 min05Corporate Issuers
Modigliani-Miller without taxes: firm value is independent of leverage. With taxes, value rises by the tax shield, t x D.
349 words, about 2 min06Equity Valuation
The Gordon growth model, P0 = D1/(r - g), requires r g and a growth rate sustainable forever, where g = retention ratio x ROE. Two-stage and H-models relax constant growth.
342 words, about 2 min07Fixed Income
Spot, par, and forward rates are linked: (1 + s2)^2 = (1 + s1)(1 + 1f1), so the implied one-year forward beginning in one year is (1 + s2)^2/(1 + s1) - 1. A par rate is the coupon that prices a bond at par given the spot curve.
325 words, about 2 min08Derivatives
At initiation, a forward's price is the rate making its value zero: F0 = S0(1 + r)^T, adjusted for carry benefits and costs. Later, value is the present value of the difference between the current forward price and the locked-in price.
351 words, about 2 min09Alternative Investments
Private equity valuations use income, market, and asset-based approaches; performance is measured by IRR and multiples such as MOIC and DPI. Early negative cash flows followed by later gains produce the J-curve.
330 words, about 2 min10Portfolio Management and Wealth Planning
Mean-variance analysis builds the efficient frontier; the capital allocation line adds the risk-free asset; the optimal risky portfolio maximizes the Sharpe ratio. Multifactor models - macroeconomic, fundamental, and statistical - and APT price systematic exposures; APT requires no arbitrage, not a market portfolio.
333 words, about 2 min