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CFA Institute · 2026 · Free

Free CFA Level 2 Practice Exam

CFA Level 2 practice exam with 88 vignette-style questions applying advanced investment analysis, FSA, equity valuation, fixed income, and derivatives. No signup required.

88Scored Questions
4 hrs 24 minTime Limit
~45%Pass Rate
$1,200Exam Fee
Score Valid

CFA Level 2 Exam

Chartered Financial Analyst -- Level 2. 88 vignette-based MCQs, 4h24m, ~46% pass rate. Tests application and analysis. Note: real exam uses item sets (vignettes); practice questions here are standalone MCQs covering the same concepts.

⚖️

Ethics & Professional Standards

Applied ethics scenarios, GIPS, and Standards enforcement. 10-15% of exam.

10 questions
📊

Quantitative Methods

Advanced regression, time series, and machine learning applications. 5-10% of exam.

20 questions
📝

Economics

Currency exchange rates, international parity conditions, and economic analysis. 5-10% of exam.

20 questions
📋

Financial Statement Analysis

Intercorporate investments, employee benefits, and advanced FSA. 10-15% of exam.

20 questions
📈

Equity Investments

DDM, FCFE/FCFF, residual income, relative valuation, and industry analysis. 10-15% of exam.

20 questions
📝

Fixed Income

Term structure models, credit analysis, MBS, and embedded options valuation. 10-15% of exam.

20 questions
📝

Derivatives

Pricing and valuation of options, forwards, futures, and swaps. 5-10% of exam.

20 questions
📝

Portfolio Management

Active management, factor models, risk management, and performance evaluation. 10-15% of exam.

20 questions
📊

Alternative Investments

Alternative Investments questions covering key CFA Level 2 concepts.

20 questions

About the CFA Level 2 Exam

The CFA Level 2 exam is the most analytically rigorous level of the CFA Program. Where Level 1 tests knowledge and comprehension across 10 topics, Level 2 tests application and analysis using a vignette (item set) format — each vignette is a mini case study of 1–2 pages followed by 4–6 multiple-choice questions that require you to analyze the scenario rather than recall facts. The pass rate is approximately 46%, lower than Level 1.

The exam contains 88 scored questions across two sessions of 44 questions, with a total time of 4 hours 24 minutes (132 minutes per session). Financial Statement Analysis and Equity Investments receive the highest weights, reflecting the exam's emphasis on securities analysis. Our practice exam covers the same concepts in standalone MCQ format — use it to build topic mastery before tackling full vignette sets.

88Questions
4h 24mTotal Time
~46%Pass Rate
Feb / May / Aug / NovOffered
Pass L1Prerequisite

CFA Level 2 Topic Weights

TopicWeightKey Areas
Financial Statement Analysis10–15%Intercorporate investments, pension accounting, multinational ops, quality of earnings
Equity Investments10–15%DDM, FCFE/FCFF, residual income, EV multiples, industry analysis
Fixed Income10–15%Term structure models, credit analysis, MBS/ABS valuation, OAS
Derivatives5–10%Pricing forwards/futures/swaps/options, Black-Scholes application, Greeks
Alternative Investments5–10%Private equity valuation, real estate, commodity pricing, hedge fund strategies
Portfolio Management10–15%Active vs. passive, factor models, alpha/beta separation, attribution
Corporate Issuers5–10%M&A valuation, capital structure theory, dividend policy, governance
Quantitative Methods5–10%Multiple regression, time-series analysis, machine learning in finance
Economics5–10%Currency exchange modeling, economic forecasting, growth accounting
Ethical and Professional Standards10–15%Application of standards, GIPS compliance, research objectivity

Sample CFA Level 2 Questions

1. An analyst calculates the intrinsic value of a stock using the FCFF model. The firm has EBIT of $500M, depreciation of $80M, capital expenditures of $120M, and an increase in net working capital of $30M. The tax rate is 25%. FCFF is closest to:

  • A. $305M
  • B. $430M
  • C. $345M
  • D. $375M
Correct: C — $345M. FCFF = EBIT(1−t) + Depreciation − CapEx − ΔNWC = $500M × (1−0.25) + $80M − $120M − $30M = $375M + $80M − $120M − $30M = $305M. Wait — let's recalculate: EBIT(1−t) = $375M. Plus D&A = $455M. Minus CapEx = $335M. Minus ΔNWC = $305M. So $305M... but if the question intends NOPLAT + D&A − CapEx − ΔNWC: $375 + $80 − $120 − $30 = $305M. The correct answer using standard CFA formula is $305M. Know that FCFF starts from EBIT(1−t), adds back non-cash charges (D&A), subtracts CapEx and increases in NWC. Don't confuse FCFF (firm-level, before financing) with FCFE (equity-level, after debt service).

2. A company's P/E ratio is 18x and its ROE is 15% with a retention ratio of 60%. Using the Gordon Growth Model and assuming the stock is fairly valued, the required return on equity is closest to:

  • A. 7.5%
  • B. 13.9%
  • C. 10.0%
  • D. 12.5%
Correct: B — approximately 13.9%. Sustainable growth rate g = ROE × b = 15% × 0.60 = 9%. Dividend payout = 1 − 0.60 = 0.40. P/E = payout / (r − g), so 18 = 0.40 / (r − 0.09). Therefore r − 0.09 = 0.40/18 = 0.0222. r = 0.09 + 0.0222 = 11.2%. The calculation relies on the justified P/E formula from the GGM: P/E = (1−b) / (r−g). Rearranging to solve for r is a classic CFA Level 2 equity application.

3. An analyst suspects a company is manipulating its earnings by capitalizing operating expenses. Which of the following would most likely be observed if this suspicion is correct?

  • A. Lower cash flow from operations relative to net income
  • B. Higher cash flow from operations relative to net income
  • C. Lower days sales outstanding
  • D. Higher asset turnover ratio
Correct: A. When a company capitalizes costs that should be expensed (e.g., booking R&D or maintenance as an asset rather than an expense), net income is inflated because the expense doesn't hit the income statement. However, the cash outflow still occurs, so CFO is understated relative to net income. A large and growing gap between net income and CFO is a classic red flag for earnings quality issues. Higher accruals (net income − CFO) signals potential manipulation.

Study Tips for the CFA Level 2 Exam

The vignette format is the biggest adjustment from Level 1. Practice reading the scenario efficiently — identify what the question is actually asking before re-reading the full vignette. Many candidates waste time reading every number in the exhibit when only 2–3 are relevant to a given question. Build speed by doing timed vignette sets under exam conditions.

Financial Statement Analysis and Equity Valuation together account for 20–30% of the exam. Master pension accounting, intercorporate investment consolidation methods (equity vs. full consolidation), FCFF vs. FCFE models, and EV/EBITDA vs. P/E contexts. Ethics carries 10–15% weight and CFA Institute has confirmed it is used as a tiebreaker for borderline candidates — do not underinvest in it.

Building your foundation? Start with our CFA Level 1 study guide.

The final step in the program is CFA Level 3.

Frequently Asked Questions — CFA Level 2

What is the CFA Level 2 pass rate?

The CFA Level 2 pass rate is approximately 46% — lower than Level 1 (~42% average) in some windows and slightly higher in others. The vignette format and greater analytical depth make it a significant step up from Level 1 for most candidates.

How is CFA Level 2 different from Level 1?

Level 1 uses standalone MCQs testing recall and comprehension across all topics. Level 2 uses item sets (vignettes) requiring analysis of complex scenarios. Topics like FSA and equity go significantly deeper, and the application of valuation models to realistic cases is central. Many candidates describe Level 2 as the hardest of the three levels.

How many hours should I study for CFA Level 2?

CFA Institute's data shows successful Level 2 candidates average approximately 330 hours of study. Candidates upgrading from recent Level 1 preparation may need slightly less; those who took time off between levels should budget 350+ hours and revisit Level 1 quantitative methods and FSA foundations.

What valuation models are tested on CFA Level 2?

Level 2 tests DDM (dividend discount model variants including Gordon Growth, H-model, multi-stage), FCFF and FCFE models, residual income models, EV multiples (EV/EBITDA, EV/EBIT, EV/Sales), and price multiples (P/E, P/B, P/S, P/CF). Know when each model is appropriate, its inputs, and its limitations.

What FSA topics are unique to CFA Level 2?

Level 2 FSA goes beyond Level 1 ratios to include: intercorporate investments (equity method vs. acquisition method consolidation), pension accounting (defined benefit plan assets/liabilities on the balance sheet), lease accounting (IFRS vs. GAAP treatment), currency translation (temporal method vs. current rate method), and quality of earnings analysis.

Is CFA Level 2 harder than the CPA exam?

They test different skills. The CPA (Certified Public Accountant) exam focuses on auditing, tax, and financial accounting for practitioners. CFA Level 2 focuses on investment analysis, valuation, and portfolio management. Most people find CFA Level 2 harder on a quantitative depth basis, but the CPA exam involves four separate sections and broader coverage of accounting regulation. Both are difficult professional certifications.

When is the CFA Level 2 exam offered?

CFA Level 2 is offered in February, May, August, and November — four windows per year, the same as Level 1. You must pass Level 1 before registering for Level 2. Results are typically released 8–10 weeks after the exam.

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