Essential Insights into the CFA Level 2 Syllabus & Course Outline

CFA Level 2 is an important step in the CFA Program, where you learn advanced investment analysis. It’s like moving up a level, where challenges are harder but rewards are greater. This stage helps you gain practical skills and understand complex financial concepts better.

Understanding the CFA Program

The CFA Program consists of three levels, each advancing on the previous one. Level 1 establishes foundational knowledge in finance, economics, and ethics. Progressing to Level 2 marks a significant advancement, focusing on intricate investment instruments and valuation methods. Candidates refine analytical skills through practical case studies, preparing for advanced levels and earning the esteemed CFA charter, symbolizing proficiency and ethical commitment in finance.

CFA Level 2 Course Outline for 2024

The CFA syllabus is designed to cultivate essential skills and competencies required by investment professionals.

Level 2 CFA Exam Books

Similar to Level 1, Level 2 also consists of 6 books covering 10 topics. However, the order of topics differs slightly from Level 1. These topics are distributed across the books as outlined in the table above. Each Level 2 book addresses 1 to 3 topics. It’s important to note that the Level 2 Ethics section no longer includes the GIPS.

CFA Level 2 Topic Order and Exam Books

CFA Level 2 Reading List

Also Read – CFA Jobs & Salaries In India After CFA Level 1, Level 2 & Level 3

CFA Level 2 Exam Weight per Topic

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CFA Level 2 Syllabus Components

1. Quantitative Methods

Your objective: While regression or time-series analysis are paramount, focus should be on their statistical intricacies.

Key terms: correlation, ANOVA, multiple regression, confidence interval, hypothesis testing, dummy variables, adjusted R2, trend, autoregressive model, ARCH models, simulations

The candidate should possess the ability to elucidate regression, time series analysis, and simulation, emphasizing their applications in investment decision-making. Furthermore, the candidate should demonstrate proficiency in interpreting the outcomes derived from regression, time-series analysis, or simulation.

2. Economics

Your aim: Delve into the economy’s interconnected components to comprehend their dynamics.

Key terms: bid-offer spread, forward premium, international parity, balance of payments, monetary & fiscal policy, growth relations, growth theories, regulations and regulators, equilibrium

The candidate is expected to articulate and apply economic principles and methodologies to predict and determine currency exchange rates, analyze economic growth patterns, and evaluate regulatory frameworks in business and financial markets.

3. Financial Statement Analysis

Your objective: Develop the ability to discern beyond surface-level information. Mastery involves interpreting, analyzing, and critiquing the figures presented in financial statements.

Key terms: accrual basis, IFRS, U.S. GAAP, multinational operations, functional currency, current rate method, employee compensations, defined benefit pension obligation, reporting quality, analysis framework

The candidate should demonstrate proficiency in evaluating the impact of financial reporting decisions on financial statements and ratios. Moreover, they should possess the capability to assess and interpret financial statements alongside accompanying disclosures, while also discerning the quality of financial reporting.

4. Corporate Issuers

Your objective: Understand the rationale behind decisions regarding investment projects, dividends, share repurchases, and M&A activities undertaken by corporations.

Key terms: optimal capital project, real options, Modigliani-Miller propositions, target capital structure, dividend policy, share repurchases, corporate governance, post-merger EPS, HHI, M&A transactions

The candidate should possess the capability to assess capital budgeting projects, capital structure policies, dividend policies, corporate governance practices, and mergers and acquisitions strategies within corporate contexts.

Also Read – A Detailed Guide On Work Experience Requirements For CFA

5. Equity Investments

Your objective: Attain a comprehensive understanding of diverse valuation models and their practical application, which may require rigorous effort.

Key terms: CAPM, Fama–French model, Pastor–Stambaugh model, WACC, industry & company analysis, DDM, PVGO, H-Model, FCFF, FCFE, sensitivity analysis, normalized EPS, PEG, residual income, asset-based approach

The candidate should demonstrate proficiency in analyzing and appraising equity securities by employing pertinent valuation concepts and techniques. Additionally, they should be capable of estimating the risk and expected return associated with equities within global contexts.

6. Fixed Income

Your objective: Grasp the intricacies underlying fixed-income instruments, which may prove more challenging than initially anticipated.

Key terms: spot rates, forward rates, YTM, bootstrapping, Z-spread, swap rate curve, term structure models, interest rate tree, embedded options, effective duration & convexity, credit scoring, CDS

The candidate should be proficient in assessing the risks and expected returns associated with fixed income instruments, analyzing the term structure of interest rates and yield spreads, and evaluating fixed income securities with embedded options and distinctive characteristics.

7. Derivatives

Your objective: Acquire knowledge on the valuation and pricing methodologies of derivatives, which entails familiarizing oneself with a variety of models.

Key terms: valuation & pricing of forwards, futures, and swaps, European & American options, Black-Scholes-Merton model, Black model, Greeks, implied volatility, derivatives strategies

The candidate should possess the ability to determine the valuation of futures, forwards, options, and swaps, and illustrate their utilization across diverse strategies.

8. Alternative Investments

Your objective: Grasp the unique characteristics of alternative investments and acquire the skills necessary to value them effectively.

Key terms: segments of real estate, direct capitalization method, DCF method, REIT, NAVPS, FFO, AFFO, buyouts, DPI, RVPI, TVPI, commodity market, contango, backwardation, commodity index

The candidate should demonstrate proficiency in analyzing and appraising real estate and private equity investments through the utilization of pertinent valuation concepts and techniques.

9. Portfolio Management

Your objective: Familiarize yourself with various portfolio types and techniques for risk measurement and return estimation.

Key terms: IPS, APT, active risk, information ratio, advantages & limitations of VaR, risk measures, yield spreads, term structure of interest rates, equity risk premium, active management, HFT

The candidate should possess the ability to elucidate and apply portfolio theory in estimating risk and return, selecting securities, and executing other practical portfolio management strategies. Furthermore, they should be adept at explaining the portfolio management process.

10. Ethical and Professional Standards

Your objective: Transition from being morally upright to effectively interpreting investment scenarios, diagnosing ethical dilemmas, and responding appropriately.

Key terms: integrity, responsibilities towards clients and the employer, diligence, loyalty, prudence, due care, mosaic theory, Investment Policy Statement

The candidate should demonstrate comprehensive knowledge of the CFA Institute Code of Ethics and Standards of Professional Conduct, adept at identifying violations, and recommending suitable corrective actions.

NOTE: In your level 2 exam, you’ll no longer be tested on the Global Investment Performance Standards (GIPSes). They are required only in your level 1 exam.

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Changes and Updates in CFA Level 2 Curriculum for 2024

IMS Proschool has diligently reviewed and compared all the changes in the 2024 CFA Level 2 curriculum to provide you with a concise summary. 

In 2024, the Level 2 CFA exam curriculum remains largely unchanged from 2023, with a total of 47 modules compared to 49 readings in the previous year. Notable adjustments include the removal of three readings (2 from Alternative Investments and 1 from Portfolio Management) and the addition of one new reading in Alternative Investments. Additionally, two readings underwent significant updates (1 in Financial Statement Analysis and 1 in Equity), while the remainder received minor revisions.

Level 2: Changes from 2023 to 2024 Curriculum

3 previous readings no longer included:

• Reading 36: Investment in Real Estate Through Private Vehicles
• Reading 38: Private Equity Investments
• Reading 46: Trading Costs of Electronic Markets

1 new learning module was introduced:

• Learning Module 38: Hedge Fund Strategies

2 readings have been revised:

• Learning Module 12: Employee Compensations
• Learning Module 27: Valuation of Private Companies

Access the revised 2024 CFA curriculum here.

Implications for candidates and their preparation strategies

As a Level 2 candidate, prioritize your focus on Equity, Financial Statement Analysis (FSA), Fixed Income, and Derivatives. While Equity has been vital historically (despite a reduced weight in 2019), the latter three topics pose significant challenges. Additionally, do not overlook Ethics, and be attentive to Portfolio Management, which gains particular importance in the Level 3 exam.

Exam Focus

When preparing for your CFA Program exam, it’s essential to keep in mind the exam’s format and key focus areas. For Level 2 candidates, prioritize mastering asset valuation and honing analytical skills. Familiarize yourself with the exam format by regularly practicing with exam-style questions to enhance your chances of success.

Also Read – 6 Important CFA Updates & Curriculum Changes Announced in 2023 | IMS Proschool

Study Tips for CFA Level 2

Balancing preparation for the vignette format and item sets

• Practice both question types regularly.
• Familiarize yourself with the format and content.
• Master fundamental concepts essential for both question formats.
• Allocate time for each question type during practice and the actual exam.
• Use guides and courses tailored to each question format.
• Analyze performance to identify areas needing improvement.

Common Challenges Faced by Level 2 Candidates

• Complex Material.
• Time Management
• Balancing Depth and Breadth.
• Exam Format.
• Retention of Material.
• Application of Knowledge.
• Stress and Pressure.

Strategies for Tackling Complex Material:

• Simplify complex topics into smaller parts for easier understanding.
• Utilize visual aids such as diagrams and charts to visualize concepts.
• Seek extra explanations from study guides, online sources, or tutors if needed.
• Engage in active learning methods like teaching others or group discussions.
• Emphasize understanding underlying principles over memorizing facts.
• Practice solving problems related to complex topics to reinforce learning.
• Take regular breaks during study sessions to avoid cognitive overload.

Also Read – Top 5 trending CFA jobs in India

Preparing for the CFA Level 2 Exam

Timeline for effective study planning

• Create a clear timeline with Study milestones to finish the portion prior to the exam date.
• Allocate time for focused study sessions on individual topics.
• Check your progress regularly with self-assessment quizzes and practice questions.
• Adjust your study plan based on mock exam results to improve weak areas.
• Prioritize understanding core concepts over memorization.
• Stay disciplined and consistent in your study routine.

Importance of mock exams and self-assessment

• Simulates real exam conditions.
• Identifies strengths and weaknesses.
• Familiarize you with the exam format.
• Improves time management skills.
• Monitors progress continuously.
• Pinpoints areas needing improvement.
• Ensures thorough curriculum coverage.
• Boosts confidence and readiness.

Exam Day Tips for CFA Level 2

Strategies for managing time during the exam:

• Skim through all questions quickly to assess difficulty levels.
• Allocate time-based on question difficulty and marks allocated.
• Keep track of time using a watch or the clock provided in the exam hall.
• Prioritize questions based on your strengths and weaknesses.
• Don’t spend too much time on one question; move on if you get stuck.
• Save time at the end for reviewing answers and making any necessary changes.

Mental and physical preparation for exam day:

• Get ample sleep for alertness and focus.
• Eat a nutritious breakfast for sustained energy.
• Arrive early at the exam center to reduce stress.
• Practice relaxation techniques to calm nerves.
• Dress comfortably in layers for temperature changes.
• Bring required items like ID, pencils, and calculators.
• Stay hydrated by drinking water during the exam.

Staying updated with the latest curriculum changes is crucial for effective preparation for the CFA exams. Ensure your study materials are current to avoid outdated topics and trends. Consider joining the IMS ProSchool CFA program for access to resources and the opportunity to ask questions to fellow candidates and industry experts regarding curriculum updates.

FAQs

1. Is CFA Level 2 very difficult?

CFA Level 2 is challenging due to its complex topics and rigorous exam format, but with dedicated study and preparation, it is achievable.

2. Is CFA Level 2 all multiple choice?

No, CFA Level 2 includes both multiple-choice questions (item sets) and vignette format questions to assess candidates’ knowledge and analytical skills.

3. Which is the toughest subject in CFA Level 2?

The difficulty of subjects varies for each candidate, but topics such as derivatives, fixed income, and quantitative methods are often considered challenging by many candidates.

4. Can CFA Level 2 get you a job?

Earning the CFA Level 2 qualification can enhance your credibility and marketability in the finance industry, potentially opening doors to job opportunities in investment management, financial analysis, and other related fields.

5. What are the major changes in the CFA Level 2 syllabus for 2024?

The major changes in the CFA Level 2 syllabus for 2024 include the addition of new readings, updates to existing readings, and the removal of certain outdated content. Candidates should refer to the official curriculum updates for specific details.

6. What resources are recommended for a comprehensive Level 2 preparation?

Recommended resources for comprehensive Level 2 preparation include official CFA curriculum materials, study guides from reputable providers, practice exams, review courses, and supplemental materials such as flashcards and online forums for discussion and clarification of doubts.

7. How can I effectively balance work and study for CFA Level 2?

To effectively balance work and study for CFA Level 2, create a realistic study schedule, prioritize tasks, utilize study materials efficiently, seek support from employers for study leave or flexible work arrangements, and maintain a healthy work-life-study balance.

8. Are there specific areas within the Level 2 syllabus that candidates commonly find challenging?

Yes, candidates commonly find areas such as derivatives, fixed income, financial statement analysis, and quantitative methods challenging in the Level 2 syllabus. It’s essential to identify your weaknesses and focus on strengthening those areas during your preparation.