Free CFA Level II Practice Exam
More than 200 questions · Updated Nov 3, 2026
The CFA Program Level II exam, administered by CFA Institute, is the second of three sequential exams required for the CFA charter and focuses on applying valuation tools in item sets.
CFA Level II at a glance
- Number of questions
- 88 multiple-choice questions in 22 item sets
- Time
- 4 hours 24 minutes
Full exam format
Prerequisites: Passing the CFA Program Level I exam, and meeting the CFA Program enrollment requirements. This site has more than 200 free CFA Level II practice questions with explanations.
Source: CFA Institute 2026 Level II Topic Outlines (learning outcomes)
Try a few CFA Level II questions
A model of monthly bond index returns on yield changes has no lagged dependent variable. The Durbin-Watson statistic is 1.20 and is below the lower critical value. Approximating the first-order residual autocorrelation as r = 1 - DW/2, which conclusion is most appropriate?
- A.r is about -0.40, and standard errors are probably understated, so t-statistics are inflated
- B.r is about +0.40, and standard errors are probably overstated, so the analyst will commit Type II errors
- C.r is about +0.20, and standard errors are probably understated, so t-statistics are inflated
- D.r is about +0.40, and standard errors are probably understated, so t-statistics are inflated
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Correct answer: D. r is about +0.40, and standard errors are probably understated, so t-statistics are inflated
DW is approximately 2(1 - r), so r = 1 - 1.20/2 = +0.40: positive serial correlation. With positive serial correlation in a model without lagged dependent variables, OLS standard errors are understated and t-statistics and F-statistics are overstated.
- A. A DW below 2 signals positive, not negative, autocorrelation; the sign was flipped.
- B. Positive serial correlation understates standard errors, which raises Type I errors rather than Type II errors.
- C. Omits the halving and then mishandles the sign (DW - 1 = 0.20); the approximation is r = 1 - DW/2 = 0.40.
- D. Correct: r = 1 - 0.60 = +0.40, positive autocorrelation, understated standard errors.
Spot is 1.2500 USD per EUR, with one-year rates of 4% in USD and 2% in EUR. A dealer quotes a one-year forward of 1.2900 USD per EUR, above the 1.2745 level implied by covered interest parity. An arbitrageur wants a riskless profit without using her own capital. Which set of transactions captures it?
- A.Borrow EUR, sell EUR spot, invest the USD, and buy EUR forward
- B.Borrow USD, buy EUR spot, invest the EUR, and buy EUR forward
- C.Take no action, since the currency with the lower rate must trade at a forward premium
- D.Borrow USD, buy EUR spot, invest the EUR, and sell EUR forward
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Correct answer: D. Borrow USD, buy EUR spot, invest the EUR, and sell EUR forward
The forward EUR is overpriced relative to parity, so sell EUR forward. Borrow 1,250,000 USD (owe 1,300,000), buy EUR 1,000,000, invest to EUR 1,020,000, sell forward at 1.29 for 1,315,800 USD: a 15,800 USD riskless gain.
- A. This is the reverse trade; it buys EUR forward at the overpriced 1.2900 rate and locks in a loss.
- B. Buying EUR forward while holding EUR invested leaves currency risk instead of locking in the overpriced forward rate.
- C. The EUR does trade at a premium, but a forward premium larger than parity implies, 1.2900 versus 1.2745, creates an arbitrage.
- D. Correct: sell the overpriced forward EUR, funded by USD borrowing.
Harbor Co. buys 30% of Linden Ltd. for USD 90 million on 1 January, when 30% of Linden's fair-valued net identifiable assets is USD 60 million. The USD 30 million excess relates entirely to equipment with a 10-year remaining life, and no goodwill arises. During the year Linden reports net income of USD 40 million and pays dividends of USD 10 million. What is the carrying amount of Harbor's investment at year-end under the equity method?
- A.USD 96 million
- B.USD 99 million
- C.USD 102 million
- D.USD 108 million
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Correct answer: A. USD 96 million
Equity method carrying value = cost + share of income - amortization of the excess fair-value step-up - dividends received. 90 + (0.30 x 40 = 12) - (30/10 = 3) - (0.30 x 10 = 3) = 96. Dividends reduce the investment because they are a return of capital, not income.
- A. Correct: 90 + 12 - 3 amortization - 3 dividends = 96.
- B. Deducts the excess amortization but forgets that dividends received reduce the carrying amount.
- C. Adds the share of income only; ignores both the excess amortization and the dividends.
- D. Adds back the amortization and the dividends instead of deducting them, reversing both signs.
Practice the CFA Level II
Work through exam-style questions for the CFA Program Level II Exam, one at a time, with an explanation after each answer. No account required. Sign in only if you want your progress synced across devices.
Questions are drafted with help from AI and published only after a person reviews and approves them. How these questions are made
What’s on the CFA Level II
Quantitative Methods5-10%
Quantitative Methods
Multiple regression and model misspecification, time-series analysis, machine learning and big-data projects.
Economics5-10%
Economics
Currency exchange rates and equilibrium value, and economic growth.
Financial Statement Analysis10-15%
Financial Statement Analysis
Intercorporate investments, employee compensation, multinational operations, financial institutions and quality of financial reports.
Corporate Issuers5-10%
Corporate Issuers
Dividends and share repurchases, ESG considerations, cost of capital and corporate restructuring.
Equity Valuation10-15%
Equity Valuation
Discounted dividend, free cash flow, market-based and residual income valuation, and private company valuation.
Fixed Income10-15%
Fixed Income
Term structure and interest rate dynamics, arbitrage-free valuation, bonds with embedded options, credit analysis models and credit default swaps.
Derivatives5-10%
Derivatives
Pricing and valuation of forward commitments and of contingent claims.
Alternative Investments5-10%
Alternative Investments
Commodities, real estate and real estate securities, and hedge fund strategies.
Portfolio Management10-15%
Portfolio Management
Economics and investment markets, active portfolio management, ETFs, multifactor models, market risk measurement and backtesting.
Ethics10-15%
Ethical and Professional Standards
The Code and Standards of Professional Conduct and their application.
Practice CFA Level II by topic
About the CFA Level II exam
- Passing score
- CFA Institute does not publish a fixed passing percentage. The Minimum Passing Score is maintained from one administration to the next through equating unless a significant change prompts the Board of Governors to reset it; it is set through a criterion-referenced standard-setting process.
- Prerequisites
- Passing the CFA Program Level I exam, and meeting the CFA Program enrollment requirements.
- Format
- 22 item sets (vignettes) of 4 multiple-choice questions each, split into two sessions of 2 hours 12 minutes (4 hours 24 minutes total), computer-based, with an optional break between sessions; 20 item sets are scored and 2 are unscored trial sets
- Level
- Level II of III sequential exams required for the CFA charter
- Who it's for
- Candidates who have passed Level I and are working toward the CFA charter, including analysts, portfolio managers and other investment professionals who apply valuation and analysis tools to investment cases.
CFA Level II exam FAQ
How many questions are on the CFA Level II exam?
88 multiple-choice questions in 22 item sets
What is a passing score on the CFA Level II?
CFA Institute does not publish a fixed passing percentage. The Minimum Passing Score is maintained from one administration to the next through equating unless a significant change prompts the Board of Governors to reset it; it is set through a criterion-referenced standard-setting process.
What is the format of the CFA Level II exam?
22 item sets (vignettes) of 4 multiple-choice questions each, split into two sessions of 2 hours 12 minutes (4 hours 24 minutes total), computer-based, with an optional break between sessions; 20 item sets are scored and 2 are unscored trial sets
Are there prerequisites for the CFA Level II?
Passing the CFA Program Level I exam, and meeting the CFA Program enrollment requirements.
Who should take the CFA Level II?
Candidates who have passed Level I and are working toward the CFA charter, including analysts, portfolio managers and other investment professionals who apply valuation and analysis tools to investment cases.
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