Study guide
1.1 CFA Level II Exam Overview & Item-Set Vignette Strategy
CFA Level 2 Chartered Financial Analyst
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1 Introduction & CFA Level II Exam Strategy
1.1 CFA Level II Exam Overview & Item-Set Vignette Strategy 1.2 2026 Curriculum Structure & 10 Topic Weight Bands 1.3 300-Hour Study Plan, Calculator Mastery & Practical Skills Modules (PSM)
2 Ethical and Professional Standards
2.1 Code of Ethics & The Seven Standards of Professional Conduct 2.2 Vignette Analysis: Conflicts of Interest & Disclosure (Standard VI) 2.3 Duties to Clients (Standard III) & Duties to Employers (Standard IV) 2.4 Standard V: Investment Analysis, Recommendations & Actions and Standard VII: Responsibilities as a CFA Member or Candidate 2.5 Application of the Code and Standards: Level II Case Method 2.6 Recommended Procedures: Compliance Programs, Supervisory Systems & Firm Policies
3 Quantitative Methods
3.1 Multiple Linear Regression, ANOVA & Hypothesis Testing 3.2 Regression Diagnostics: Multicollinearity, Heteroskedasticity & Serial Correlation 3.3 Time-Series Analysis: AR Models, Nonstationarity & Cointegration 3.4 Machine Learning, Deep Learning & Big Data Projects 3.5 Extensions of Multiple Regression: Influence Analysis, Qualitative Variables & Logistic Regression 3.6 Big Data Projects: Wrangling, Exploration, Feature Engineering & Model Training
4 Economics for Valuation
4.1 Foreign Exchange Parity Relations & Equilibrium Exchange Rates 4.2 Economic Growth Theories & Production Function Analysis 4.3 Forward Points, the Carry Trade & Policy Effects on Exchange Rates 4.4 Growth Determinants: Natural Resources, Demographics, Convergence & Trade Openness
5 Financial Statement Analysis
5.1 Intercorporate Investments: Equity Method & Business Combinations 5.2 Employee Compensation: Defined Benefit Pension Plans & Share-Based Payments 5.3 Multinational Operations: Current Rate vs Temporal Translation 5.4 Analysis of Financial Institutions & The CAMELS Framework 5.5 Evaluating the Quality of Financial Reports & Accounting Adjustments 5.6 Integration of Financial Statement Analysis Techniques
6 Corporate Issuers
6.1 Analysis of Dividends: Policy Theories, Signaling & Taxation Systems 6.2 Share Repurchases: Methods, EPS and Book Value Effects & Payout Sustainability 6.3 Cost of Capital: Advanced Topics 6.4 Corporate Governance, Board Oversight & ESG Integration 6.5 Corporate Restructuring: Types, Motivations, Evaluation & Valuation 6.6 Restructuring Financial Effects: EPS, Net Debt to EBITDA, WACC & Divestitures
7 Equity Valuation
7.1 Equity Valuation Framework & Required Rate of Return Estimation 7.2 Discounted Dividend Valuation: Gordon Growth, Multistage & The H-Model 7.3 Free Cash Flow Valuation: FCFF and FCFE Modeling 7.4 Market-Based Valuation: Price and Enterprise Value Multiples 7.5 Residual Income Valuation 7.6 Private Company Valuation: Income, Market & Asset-Based Approaches 7.7 Choosing and Combining Models: Definitions of Value, Sum-of-the-Parts & Cross-Border Comparability
8 Fixed Income Analysis
8.1 The Term Structure and Interest Rate Dynamics: Spot, Forward & Swap Curves 8.2 The Arbitrage-Free Valuation Framework & Binomial Interest Rate Trees 8.3 Valuation and Analysis of Bonds with Embedded Options: OAS & Duration 8.4 Credit Analysis Models: Structural vs Reduced-Form Approaches 8.5 Credit Default Swaps (CDS): Mechanics, Pricing & Trading Strategies 8.6 Managing Yield-Curve Risk: Key Rate Durations, One-Sided Durations & Yield Volatility Structure
9 Derivatives & Risk Management
9.1 Pricing and Valuation of Forward Commitments: Equity, Fixed Income & FX 9.2 Swap Pricing and Valuation: Interest Rate, Currency & Equity Swaps 9.3 Contingent Claims: Binomial Option Pricing Model & Arbitrage Replication 9.4 The Black-Scholes-Merton (BSM) Model, Option Greeks & Dynamic Hedging 9.5 Interest Rate Options, Swaptions & the Black Model
10 Alternative Investments
10.1 Commodities and Commodity Derivatives: Sectors, Participants, Futures Returns & Indexes 10.2 Private Real Estate Investments: Direct Capitalization, DCF & Cost Approach 10.3 Public Real Estate Investments: REIT Structures, NAV, FFO & AFFO 10.4 Hedge Fund Strategies: Classification, Implementation & Portfolio Role 10.5 Real Estate Investment Features, Due Diligence & Index Construction Biases
11 Portfolio Management
11.1 Using Multifactor Models: Macroeconomic, Fundamental & Statistical Risk 11.2 Measuring and Managing Market Risk: VaR, CVaR & Stress Testing 11.3 Economics & Investment Markets: Business Cycles, Term Structure & Asset Allocation 11.4 Analysis of Active Portfolio Management & The Fundamental Law 11.5 Exchange-Traded Funds (ETFs): Creation, Arbitrage, Tracking & Applications 11.6 Backtesting and Simulation: Procedures, Metrics, Biases & Scenario Analysis
1.1 CFA Level II Exam Overview & Item-Set Vignette Strategy
Key Takeaways Explain This Topic AI
The CFA Level II exam comprises 88 multiple-choice questions organized into 22 item sets (11 vignettes per 132-minute session), with 20 scored item sets and 2 unscored trial sets.
Each vignette consists of a 1.0 to 2.5-page case narrative containing background information, financial statements, and analyst dialogues followed by 4 standalone questions.
Optimal exam pacing allocates 12 minutes per item set (3 minutes per question), utilizing a question-stem-first skimming technique to filter extraneous narrative data.
Since February 2025 CFA Institute reports a scale score for Level II on a 2000 to 2900 range with a published Minimum Passing Score of 2600, recommended by modified Angoff standard setting and set by the Board of Governors.
Recent Level II pass rates were 43% in May 2026, 42% in November 2025, 44% in August 2025, and 54% in May 2025; candidates may sit twice per calendar year but not in consecutive windows, with a six-attempt lifetime limit per level.
Last updated: August 2026
1.1 CFA Level II Exam Overview & Item-Set Vignette Strategy
Core Insight: The Chartered Financial Analyst (CFA) Level II examination marks the transition from foundational knowledge recall to rigorous asset valuation and practical synthesis. Success requires not only mastering complex quantitative valuation models across 10 curriculum topics, but also navigating the signature item-set vignette format under strict time constraints.
1. Exam Architecture & Computer-Based Testing (CBT) Structure
The CFA Level II examination is administered worldwide via computer-based testing (CBT). The exam tests candidate competency through real-world investment scenarios organized into discrete item sets.
Key Structural Specifications
Total Questions: 88 multiple-choice questions.
Item Sets (Vignettes): 22 item sets in total, with each item set containing exactly 4 multiple-choice questions based on a shared case narrative.
Session Breakdown: Two equal sessions of 132 minutes (2 hours and 12 minutes) each, separated by an optional break of up to 30 minutes.
Session 1 (Morning / AM): 11 item sets (44 questions).
Session 2 (Afternoon / PM): 11 item sets (44 questions).
Total Testing Time: 264 minutes (4 hours and 24 minutes).
Scored vs. Unscored Trial Items: Of the 22 total item sets, 20 item sets (80 questions) are scored, while 2 item sets (8 questions) are unscored pretest/trial items used by CFA Institute for psychometric calibration. The trial item sets are indistinguishable from scored sets and are randomly distributed across both sessions.
- Exam Dimension CFA Level I CFA Level II
- Question Format Standalone independent multiple-choice Item-set case vignettes with 4 questions each
- Total Questions 180 questions (90 per session) 88 questions (44 per session)
- Total Vignettes N/A (single-statement prompts) 22 vignettes (11 per session)
- Testing Time Two 135-minute sessions (270 min total) Two 132-minute sessions (264 min total)
- Average Time per Question 1.5 minutes (90 seconds) 3.0 minutes (180 seconds) including reading
Scored Questions Unscored trial items are included but the count is not published by CFA Institute 80 scored / 8 trial questions (20 of 22 item sets are scored)
Primary Cognitive Level Knowledge, Comprehension & Basic Calculation Application, Analysis, Synthesis & Valuation
2. Anatomy of an Item-Set Vignette
A CFA Level II vignette is a comprehensive business or investment case study spanning approximately 1.0 to 2.5 pages of text, tables, and financial exhibits. Each vignette presents a practical situation involving an equity research analyst, portfolio manager, corporate treasurer, or investment consultant.
Typical Vignette Components
Executive Background & Context: Introduces the company, industry macroeconomic backdrop, regulatory environment, and the professional role of the analyst.
Exhibits & Financial Statements: Balance sheets, income statements, cash flow statements, footnote disclosures, debt schedules, or macroeconomic forecasts.
Analyst Notes & Conversations: Transcripts of meetings with corporate management, investment committee discussions, or analyst valuation assumptions.
Four Standalone Questions: Each question offers three answer choices. While all four questions relate to the same case scenario, they are designed to be independently solvable . An error in Question 1 will not cause a compounding penalty in Question 2, because questions either test separate aspects of the vignette or provide explicit standalone assumptions (e.g., "Assuming the company's cost of equity is 9.5%..." ).
3. High-Yield Item-Set Test Strategy
Navigating Level II vignettes requires an active, structured approach. Candidates who read vignettes passively like textbook chapters routinely run out of time or get trapped by superfluous data.
The 12-Minute Vignette Pacing Rule
With 11 item sets across 132 minutes per session, candidates have an exact budget of 12 minutes per item set (3 minutes per question). A recommended micro-breakdown for each 12-minute block is:
Minutes 0:00 – 1:30: Read the 4 question stems first to identify target topics, formulas, and exhibits.
Minutes 1:30 – 4:00: Scan the vignette, map paragraphs to questions, and extract relevant data.
Minutes 4:00 – 11:00: Execute calculations, evaluate conceptual statements, and select answers (~1.75 minutes per question).
Minutes 11:00 – 12:00: Final verification of units, signs, conventions, and ensure no question is left blank.
The Question-First Skimming Technique
Never read the entire vignette from start to finish before reading the questions. Instead:
Read Question 1's Stem and Target Metric: Identify what is being asked (e.g., "Calculate the FCFF for 2025 using the data in Exhibit 1" ).
Locate Targeted Paragraphs & Exhibits: Questions on CFA Level II almost always follow the chronological sequence of the narrative. Question 1 typically corresponds to the first 1–2 paragraphs or Exhibit 1; Question 4 maps to the final section or exhibit.
Filter Extraneous Narrative Information: CFA Institute deliberately includes real-world "noise"—irrelevant historical years, non-operating footnotes, or distractor ratios. Reading the question stem first provides a mental filter to isolate only the necessary variables.
Beware of Inverted Framing: Watch for negative qualifiers such as "least likely" , "most inaccurate" , or "except" , which appear frequently in qualitative vignettes.
- 4. Scoring Methodology, Minimum Passing Score (MPS) & Retake Rules
- The Modified Angoff Method
CFA Institute does not apply a predetermined bell curve or a fixed percentage quota. The Minimum Passing Score (MPS) is recommended through a standard setting process and then approved and set by the CFA Institute Board of Governors :
CFA Institute has used the modified Angoff standard setting method — an exam-centred, criterion-based method — since 1996 .
A panel of CFA charterholders judges, question by question, what a just-competent candidate should answer correctly.
The panel's recommendation goes to the Board of Governors, which establishes the final MPS for each level.
Equating then transfers an approved MPS to later administrations, so candidates who sit a harder exam version are not penalised.
Because standard setting is criterion-referenced , every candidate who meets the absolute standard passes. There is no quota.
The Published Scale Score and MPS
Since the February 2025 administration , CFA Institute reports a scale score on every score report, and the MPS is published on that scale:
- Program level Minimum scale score MPS Maximum scale score
- Level I 1000 1600 1900
- Level II 2000 2600 2900
- Level III 3000 3600 3900
A Level II candidate passes when the scale score is 2,600 or higher . Since the August 2025 administration , the score report also shows group average performance by topic area alongside the candidate's own performance.
What is still not published is the percentage of questions needed to pass. CFA Institute states explicitly that the required percentage of correct answers "may vary slightly among versions" because exam forms differ slightly in difficulty. Any specific raw-percentage figure quoted by a third-party provider is an estimate, not an official threshold.
Recent Pass Rates & Retake Policies
Recent Level II pass rates (CFA Institute press releases): 43% in May 2026 (18,111 candidates), 42% in November 2025 (15,003 candidates), 44% in August 2025, and 54% in May 2025. The long-run average sits in the mid-40s, but the dispersion across windows is wide enough that a single window's rate should not be treated as the expected outcome.
First-time versus deferred candidates diverge sharply. In May 2026 first-time candidates passed at 48% while those testing after at least one deferral passed at 25% ; the November 2025 gap was 50% against 27%.
Retake Timing: candidates may sit an exam level a maximum of two times per calendar year , but not in consecutive testing windows and not in windows less than six months apart .
Lifetime Attempt Limit: candidates are subject to a six-attempt limit per exam level. After six unsuccessful attempts at a level, a candidate is no longer eligible to register for it.