CFA Level 2 Exam Prep | CFA Level 2 Study Guide

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Master All Sections of the CFA Level 2 Exam

Access comprehensive practice materials for the most popular exams.

Alternative Investments

Description: Advanced topics in alternative investments, including real estate valuation, private equity, and hedge fund strategies.

Corporate Finance

Description: Advanced topics in corporate finance including capital structure decisions, dividend policy, and corporate governance.

Derivatives

Description: Advanced concepts in derivatives including valuation of forwards, futures, options, swaps, and risk management strategies.

Economics

Description: Application of economic concepts in investment analysis, including currency exchange rates and economic growth theories.

Equity Investments

Description: This section covers advanced equity valuation techniques, industry and company analysis, and equity market structures.

Ethical and Professional Standards

Description: This section emphasizes the application of ethical principles and professional standards in investment scenarios.

Financial Reporting and Analysis

Description: In-depth analysis of financial statements, accounting methods, and their impact on financial ratios and valuations.

Fixed Income

Description: This section delves into valuation and analysis of fixed income securities, including term structure models and credit analysis.

Portfolio Management

Description: Advanced portfolio management techniques, including risk management, asset allocation, and performance attribution.

Quantitative Methods

Description: Advanced quantitative techniques including regression analysis and time-series analysis applied to financial data.

Dive Deeper into Exam Categories

Alternative Investments Categories

Hedge Fund Strategies

Understanding various hedge fund strategies.

Equity Hedge:
Long/short equity strategies.
Event-Driven:
Strategies based on corporate events.
Global Macro:
Strategies based on global economic trends.
Relative Value:
Exploiting valuation discrepancies.

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Private Equity Valuation

Valuation methods for private equity investments.

Exit Strategies:
Methods of exiting private equity investments.
Leveraged Buyouts:
Valuation in LBO transactions.
Performance Measurement:
Assessing private equity returns.
Venture Capital:
Valuing early-stage companies.

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Corporate Finance Categories

Capital Structure Decisions

Determining the optimal mix of debt and equity.

Agency Costs:
Conflicts between stakeholders.
Financial Distress:
Risks associated with high leverage.
Modigliani-Miller Propositions:
Impact of taxes and bankruptcy.
Pecking Order Theory:
Preference for internal financing.

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Corporate Governance

Structures and practices for effective management oversight.

Board of Directors:
Roles and responsibilities.
Executive Compensation:
Aligning management interests.
Regulatory Environment:
Laws and regulations affecting governance.
Shareholder Rights:
Voting and ownership rights.

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Dividends and Repurchases

Decisions on returning capital to shareholders.

Dividend Policy Theories:
Relevance of dividends to value.
Factors Affecting Dividends:
Determinants of payout policy.
Impact on Financial Ratios:
Effects on EPS and ROE.
Share Repurchase Methods:
Techniques for buybacks.

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Derivatives Categories

Forward Pricing and Valuation

Valuing forward contracts and futures.

Currency Forwards:
Valuing currency forward contracts.
Equity Forwards:
Valuing forwards on equities.
Fixed Income Forwards:
Valuing forwards on bonds.
Futures Contracts:
Pricing differences between futures and forwards.

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Option Valuation

Valuing options using different models.

Binomial Models:
Valuing options with binomial trees.
Black-Scholes Model:
Using Black-Scholes formula for valuation.
Greeks:
Sensitivity measures for options.
Implied Volatility:
Volatility implied by market prices.

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Economics Categories

Currency Exchange Rates

Understanding and forecasting exchange rates.

Carry Trade:
Profiting from interest rate differentials.
Exchange Rate Models:
Predicting currency movements.
Exchange Rate Regimes:
Fixed vs floating systems.
Parity Conditions:
Purchasing power parity concepts.

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Economic Growth and Development

Factors influencing economic growth.

Capital Deepening:
Impact of investment in capital.
Government Policies:
Influence of fiscal and monetary policy.
Growth Theories:
Classical and endogenous growth.
Productivity:
Role of technology and innovation.

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Equity Investments Categories

Industry and Company Analysis

Analyzing industries and companies for investment.

Company Analysis:
Assessing company strategy and performance.
Competitive Forces:
Analyzing industry competition using Porters Five Forces.
Growth Analysis:
Estimating company growth prospects.
Industry Classification:
Understanding industry classification systems.

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Equity Market Structure

Understanding how equity markets are structured and how trading occurs.

Algorithmic Trading:
Use of algorithms in trading strategies.
Market Microstructure:
Mechanics of how markets operate.
Market Participants:
Roles of different market participants.
Order Types and Instructions:
Various order types used in trading.

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Equity Valuation Applications

Advanced techniques for valuing equity securities.

Discounted Dividend Valuation:
Valuing stocks using dividend discount models.
Free Cash Flow Valuation:
Valuation based on free cash flows to equity or firm.
Market-Based Valuation:
Using price multiples and enterprise value multiples.
Residual Income Valuation:
Valuing equity using residual income models.

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Ethical and Professional Standards Categories

Professional Standards Application

Applying the Code and Standards to real-world situations.

Conflicts of Interest:
Identifying and managing conflicts.
Ethical Decision-Making:
Applying ethical frameworks.
Responsibilities to Clients:
Duties owed to clients.
Responsibilities to Employers:
Duties owed to employers.

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Research Objectivity Standards

Ensuring integrity in research reports.

Compensation Arrangements:
Influence of compensation on objectivity.
Investment Banking Relationships:
Managing potential conflicts.
Personal Investments:
Rules regarding analyst investments.
Public Appearances:
Standards for public communications.

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Financial Reporting and Analysis Categories

Employee Compensation

Accounting for pension plans and share-based compensation.

Defined Benefit Plans:
Accounting for pension obligations.
Defined Contribution Plans:
Employer contributions accounting.
Post-Employment Benefits:
Other long-term benefits.
Share-Based Compensation:
Accounting for stock options.

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Intercorporate Investments

Accounting for investments in other companies.

Acquisition Method:
Consolidation of financial statements.
Equity Method:
Accounting for significant influence.
Impairment of Investments:
Recognizing investment losses.
Joint Ventures:
Shared control investments.

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Multinational Operations

Accounting for companies operating in multiple currencies.

Foreign Currency Transactions:
Recording transactions in foreign currencies.
Hedging Currency Risk:
Using derivatives to manage risk.
Impact on Financial Statements:
Effects of currency fluctuations.
Translation Methods:
Temporal and current rate methods.

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Fixed Income Categories

Credit Analysis and Valuation

Evaluating credit risk and valuing credit-sensitive instruments.

Credit Derivatives:
Using derivatives to manage credit risk.
Credit Risk Measurement:
Assessing probability of default and loss given default.
Reduced Form Models:
Statistical models of default risk.
Structural Models:
Models based on company assets and liabilities.

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Term Structure Dynamics

Understanding the term structure of interest rates and modeling interest rate movements.

Forward Rates:
Calculating and interpreting forward rates.
Interest Rate Models:
Short-rate and equilibrium models.
Interest Rate Volatility:
Modeling and implications of rate volatility.
Yield Curve Construction:
Building yield curves from market data.

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Portfolio Management Categories

Asset Allocation

Strategies for allocating assets in a portfolio.

Currency Management:
Managing currency exposure in portfolios.
Global Asset Allocation:
Allocating assets across global markets.
Strategic Asset Allocation:
Long-term asset mix decisions.
Tactical Asset Allocation:
Short-term adjustments to asset mix.

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Performance Evaluation

Evaluating and attributing portfolio performance.

Attribution Analysis:
Determining sources of portfolio returns.
Benchmark Selection:
Choosing appropriate benchmarks.
Performance Appraisal:
Assessing manager skill.
Risk-Adjusted Measures:
Sharpe ratio, Information ratio.

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Risk Management Applications

Applying risk management techniques in portfolios.

Credit Risk Management:
Managing exposure to credit risk.
Managing Market Risk:
Techniques to manage exposure to market risk.
Stress Testing:
Assessing portfolio under extreme conditions.
Value at Risk:
Measuring potential portfolio losses.

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Quantitative Methods Categories

Multiple Regression Analysis

Using multiple regression in financial modeling.

Hypothesis Testing:
Testing significance of variables.
Model Assumptions:
Assumptions underlying regression.
Multicollinearity:
Impact and detection of multicollinearity.
Regression Coefficients:
Interpreting coefficients in models.

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Time-Series Analysis

Analyzing data points collected over time.

Autoregressive Models:
Using past values to predict future.
Model Evaluation:
Assessing model fit and forecasting.
Seasonality:
Adjusting for seasonal effects.
Trend Models:
Identifying trends in data.

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And more! Questions and categories are updated monthly to keep you ahead.