Top 7 CFA level 2 exam tips

Congratulations 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.


Do you have any other top tips? Do you agree on the ranking? Please leave a comment and share your ideas!


About Servaas Houben

I am a Dutch actuary and worked in the Netherlands for the first 4 years of my career. Thereafter, I worked for 2 years in Dublin and 4 years in London. I am now heading the actuarial department of ENNIA in Curacao.
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4 Responses to Top 7 CFA level 2 exam tips

  1. Fantasticly developed write-up, if almost all blog site masters developed a related content when you, the world wide web would have been a increased vacation spot.

  2. Do you think pursuing CFA and actuary is a good choice for a student?

    • Hi, I think both studies can be used to create synergy as portfolio management, discounting of cash flows and degree of risk aversion are an important part of both studies.

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