CFA Level 2: What to Expect of CFA Level 2

The CFA certification is regarded as one of the most reputed professional degrees. The CFA exam has three levels. In this article, we will explore CFA Level 2 in-depth and understand what to expect of CFA level 2.

CFA Level 2 is a pivotal step in the CFA journey. While Level 1 of the CFA exam tests the candidate’s fundamental knowledge, CFA Level 2 dives deeper into more complex financial topics, thus in a way making it difficult to crack even for students with a strong background in finance. CFA Level 1 is about understanding the concepts, and Level 2 is about applying those concepts. The CFA 2025 exam is scheduled to be conducted from May 21, 2025, to May 25, 2025, for the May 2025 exams. 

The CFA program is a professional three-level programme which tests the candidate’s skills and knowledge in the field of finance and investment and the CFA certification is regarded as one of the most reputable professional degrees. In this article, we will explore CFA Level 2 in-depth and understand what to expect of CFA Level 2.

CFA Level 2 Exam Pattern

Refer to the table below to know the detailed CFA Level 2 exam pattern:

The CFA Level 2 structure focuses on the broad concepts tested and studied at Level 1. The questions at level 2 are mini case studies that cover real-world financial situations, requiring the aspirants to extract relevant information and apply financial concepts to answer the questions. This format ensures that aspirants not only understand theoretical knowledge but can also demonstrate practical application skills, which are critical in the finance industry.

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CFA Level 2 Curriculum: Syllabus Important Topics

The Level 2 CFA syllabus is a continuation of the topics studied at Level 1 but it delves deeper. The CFA syllabus for Level 2 consists of the following topics:

Ethical and Professional Standards: This section of the CFA Level 2 exam covers the code of ethics and professional standards. This section is one of the important sections across the three levels of the CFA exam. Students can use the seven Standards of Professional Conduct and the six Components of the Code of Ethics to answer the questions in this section.

Quantitative Methods: There may be one or two item set questions under this section. The candidates will be asked to analyze and interpret data present in case statement presenting data regression. They may require to calculate key metrics based on the available data. The Quantitative Method focuses on data analysis and modeling.

Economics: Candidates may expect one item set in this section. Candidates with a good conceptual knowledge of economic concepts can easily score well in this section. Students should have a good hold on the financial market concepts and knowledge about the regulation effects on the markets.

Financial Statement Analysis: This section covers a large part of the Level 2 curriculum. Candidates can expect at least four to five item sets under this section. The important topics under this section are; intercorporate investments, employee compensation, multinational operations, financial institutions, financial report quality evaluation, financial statement modeling, etc.

Corporate Issuers: The Corporate Issuer section focuses on key topics such as capital structure, cost of capital, dividend and repurchase policies, corporate governance, and restructuring challenges. Students are required to understand the impact of different dividend types, explain the theories behind them, and perform calculations involving shares, dividends, buybacks, and tax effects. Additionally, the section emphasizes the importance of ESG (environmental, social, and governance) factors and the associated investment risks, requiring you to understand and explain these issues.

Portfolio Management: There may be one or two item sets under this section as well. This section also has a vast study material. The level of difficulty of this section increases in Level 3 CFA exam. Candidates can focus on gaining a general understanding of the concepts as they will be tested on mechanics of exchange-traded funds, multifactor models and back testing. Students will also be required to compare active and passive portfolio management strategies, explain economics and markets, etc.

Equity Investment: There are about four to five item sets again in this section. Some key topics include equity valuation methods, terms and definitions, discounted dividend valuation methods, modeling, free cash flow modeling and methods, market-based valuation methods and techniques, residual income calculation, private company valuation models and methods. There will be many formula-based questions in this section.

Fixed Income: Students can expect one or two item sets in this section. This section is also very heavy on formula-based calculations and the concepts are complex. This section has credit analysis, credit default swaps, bonds, arbitrage-free valuation, interest rates, etc. as some of the key topics.

Derivatives: This section can be a challenging one for many. The study material covers futures and forwards, options, swaps, carry arbitrage, currency forwards, and interest rate futures. Students will need to be able to valuate and price forward commitments and contingent claims on both American and European options.

Alternative Investments: This section assesses the student’s ability to analyse investment opportunities in public and private real estate, hedge funds, and commodities. They can expect one or two item sets from this section. Students will need to describe how commodity swaps are utilized, explain roll returns in both contango and backwardation markets, and have a solid understanding of commodity sectors, the role of real estate in a portfolio, and various hedge fund strategies, along with several other related topics.

Also Read: What to expect of CFA Level 1?

CFA Level 2 Exam Tips

Mentioned below are some of the important CFA exam Level 2 tips which will help students in cracking the exam:

• Financial Statement Analysis questions are based on International Financial Reporting Standards (IFRS) unless noted otherwise. If a question uses US GAAP, it will be clearly mentioned.
• Familiarize yourself with your calculator and its features, as it’s essential for addressing the learning outcome statements (LOS).
• There is no negative marking for wrong answers, but, the students must focus on answering all the questions in the session.
• There is no dress code for the exam day. But, the students must focus on dressing for comfort. Layering is recommended for varying temperatures.
• It is recommended to the CFA mock test for Level 2 to stimulate the actual test day experience.
• Understand how the test center’s hardware/software may affect the student and check the CFA exam calendar for important dates and deadlines.

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