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Free CFA Institute CFA-Level-II Exam Questions

Absolute Free CFA-Level-II Exam Practice for Comprehensive Preparation 

  • CFA Institute CFA-Level-II Exam Questions
  • Provided By: CFA Institute
  • Exam: CFA Level II Chartered Financial Analyst
  • Certification: CFA Level II
  • Total Questions: 713
  • Updated On: Jan 13, 2026
  • Rated: 4.9 |
  • Online Users: 1426
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  • Question 1
    • Maria Harris is a CFA Level 3 candidate and portfolio manager for Islandwide Hedge Fund. Harris is commonly involved in complex trading strategies on behalf of Islandwide and maintains a significant relationship with Quadrangle Brokers, which provides portfolio analysis tools to Harris. Recent market volatility has led Islandwide to incur record-high trading volume and commissions with Quadrangle for the quarter. In appreciation of Islandwide's business, Quadrangle offers Harris an all-expenses-paid week of golf at Pebble Beach for her and her husband. Harris discloses the offer to her supervisor and compliance officer and, based on their approval, accepts the trip.
      Harris has lunch that day with C. K. Swamy, CFA, her old college roommate and future sister-in-law. While Harris is sitting in the restaurant waiting for Swamy to arrive, Harris overhears a conversation between the president and chief financial officer (CFO) of Progressive Industries. The president informs the CFO that Progressive's board of directors has just approved dropping the company's cash dividend, despite its record of paying dividends for the past 46 quarters. The company plans to announce this information in about a week. Harris owns Progressive's common stock and immediately calls her broker to sell her shares in anticipation of a price decline.
      Swamy recently joined Dillon Associates, an investment advisory firm. Swamy plans to continue serving on the board of directors of Landmark Enterprises, a private company owned by her brother-in-law, for which she receives $2,000 annually. Swamy also serves as an unpaid advisor to the local symphony on investing their large endowment and receives four season tickets to the symphony performances.
      After lunch, Alice Adams, a client, offers Harris a 1 -week cruise as a reward for the great performance of her account over the previous quarter. Bert Baker, also a client, has offered Harris two airplane tickets to Hawaii if his account beats its benchmark by more than 2% over the following year.
      Juliann Clark, a CFA candidate, is an analyst at Dillon Associates and a colleague of Swamy's. Clark participates in a conference call for several analysts in which the chief executive officer at Dex says his company's board of directors has just accepted a tender offer from Monolith Chemicals to buy Dex at a 40% premium over the market price. Clark contacts a friend and relates the information about Dex and Monolith. The friend promptly contacts her broker and buys 2,000 shares of Dex's stock.
      Ed Michaels, CFA, is director of trading at Quadrangle Brokers. Michaels has recently implemented a buy program for a client. This buy program has driven up the price of a small-cap stock, in which Islandwide owns shares, by approximately 5?cause the orders were large in relation to the average daily trading volume of the stock. Michaels' firm is about to bring shares of an OTC firm to market in an
      IPO. Michaels has publicly announced that, as a market maker in the shares, his trading desk will create additional liquidity in the stock over its first 90 days of trading by committing to minimum bids and offers of 5,000 shares and to a maximum spread of one-eighth.
      Carl Park, CFA, is a retail broker with Quadrangle and has been allocated 5,000 shares of an oversubscribed IPO. One of his clients has been complaining about the execution price of a trade Park made for her last month, but Park knows from researching it that the trade received the best possible execution. In order to calm the client down. Park increases her allocation of shares in the IPO above what it would be if he allocated them to all suitable client accounts based on account size. He allocates a pro rata portion of the remaining shares to a trust account held at his firm for which his brother-in-law is the primary beneficiary.
      Has Michaels violated Standard 11(B) Integrity of Capital Markets: Manipulation with respect to any of the following?

      Answer: C
  • Question 2
    • Mary Montpicr is an equity analyst with World Renowned Advisors. The firm provides investment advice and financial planning services globally to institutional and retail clients. Shortly after the company opened an office in Malaysia, Montpier's supervisor in the New York office. Rick Reynolds, asked her to relocate, and Montpier agreed. The goal of the new Malaysian office is to serve as a source of international investment opportunities for U .S . clients. Montpier's main task is to cover small-cap stocks in the region and develop a network of contacts with other investment firms in the region.
      Through her interaction with other analysts in Malaysia, Montpier learns that the use of material nonpublic information is common practice in analyst research reports and recommendations. Such practice is not prohibited by law in Malaysia. Montpier is encouraged by this knowledge because she recently observed several investment bankers meeting numerous times at an exclusive local country club with the CEOs of two Malaysian rival companies. It is public information that one of the companies is searching for potential acquisition targets. She has thought several times about issuing a recommendation on one of the companies but has not done so for fear of breaking the law. After learning of the Malaysian insider trading laws, Montpier recommends the stock of the acquisition target, which she had already established as a good investment through prior research.
      Montpier has also learned that Malaysian law is very lax regarding outside consulting arrangements by investment professionals. It is common for analysts and portfolio managers to maintain ongoing consulting contracts with entities other than their primary employer. As a result of this, Montpier has begun financial service consultations for members of a local investment club. The club is developing an appropriate compensation package for her services, which to date have included financial planning activities and investment research. When Montpier established the relationship with the investment club, she informed them that she had a full-time job at World Renowned Advisers, which offers similar services.
      After a year of consulting with the investment club, Malaysian law changed, requiring investment bankers, securities analysts, and portfolio managers to register with the Malaysian Securities Commission in order to engage in independent consulting practice. Since she is unaware of the change, Montpier does not file the proper registration forms and is later investigated, fined, and temporarily sanctioned by the Malaysian Securities Commission. Montpier is able to have the sanction, but not the fine, removed after appealing the Commission's ruling. Montpier's counterpart in the New York office is Jim Taylor, who has worked as an analyst at World Renowned Advisors for approximately seven years. Taylor researches health care and biotech stocks for the firm and participates in client meetings when managers are recommending stocks that Taylor covers. Taylor recently completed Level 1 of the CFA examination and is waiting for his results so he can register for the Level 2 examination.
      In preparation for a client meeting, Taylor's supervisor, Jessica James, asks him to prepare a research report on attractive companies in the health care industry. Since Taylor is busy preparing for company conference calls, James tells him to 'throw something together from the street.' To meet James' request, Taylor obtains reports on Immune Healthcare and Remedy Corp., two companies that he has heard about but has not researched. Taylor takes the original reports he obtains from a third-party, adds some general industry information, and submits 'strong buy' recommendations to James for the stocks. He does not credit the original authors in the report, which is a violation of copyright law. Taylor includes his qualifications in the report and mentions that he is a 'Level 2 Candidate in the CFA Program.' Although written procedures require James to review all analyst reports prior to release, time constraints often prevent her from reviewing the reports prior to distribution. James recommends the stocks to her clients, who then purchase them. Several months later, the clients are able to sell the Immune Healthcare and Remedy Corp. shares at annualized rates of return of 21% and 17%, respectively. James informs Taylor of the clients' successful investments and requests that he begin investigating potential biotech investments for the same group of investors.
      To gain insight on biotech stocks, Taylor registers for an upcoming medical study, where he and others will be the subject of testing for the efficacy of several new drugs. On his application, Taylor indicates that he has the appropriate medical condition for the study and signs a confidentiality agreement, but he leaves the question about his occupation blank. During the study, Taylor learns that two of the new drugs on which Next Breakthrough Corp. is awaiting regulatory approval have serious negative side effects in patient testing. This information confirms existing research that Taylor has been working on in the health care sector. At the conclusion of the study, Taylor sends an e-mail to his clients recommending that they 'sell' Next Breakthrough Corp. Over the next two weeks. Next Breakthrough releases information that the drugs in question have been held up by a regulatory agency pending additional investigation. The stock plunges over 30% on the news.
      In providing financial planning and investment research services to the investment club, has Montpier likely violated any CFA Institute Standards of Professional Conduct?

      Answer: A
  • Question 3
    • Erich Reichmann, CFA, is a fixed-income portfolio manager with Global Investment Management. A recent increase in interest rate volatility has caused Reichmann and his assistant, Mel O'Shea, to begin investigating methods of hedging interest rate risk in his fixed income portfolio.
      Reichmann would like to hedge the interest rate risk of one of his bonds, a floating-rate bond (indexed to LIBOR). O'Shea recommends taking a short position in a Eurodollar futures contract because the Eurodollar contract is a more effective hedging instrument than a Treasury bill futures contract.
      Reichmann is also analyzing the possibility of using interest rate caps and floors, as well as interest rate options and options on fixed income securities, to hedge the interest rate risk of his overall portfolio.
      Reichmann uses a binomial interest rate model to value 1-year and 2-year 6% floors on 1-year LIBOR, both based on $30 million principal value with annual payments. He values the 1-year floor at $90,000 and the 2-year floor at $285,000.
      Reichmann has also heard about using interest rate collars to hedge interest rate risk, but is unsure how to construct a collar.
      Finally, Reichmann is interested in using swaptions to hedge certain investments. He evaluates the following comments about swaptions.
      * If a firm anticipates floating rate exposure from issuing floating rate bonds at some future date, a payer swaption would lock in a fixed rate and provide floating-rate payments for the loan. It would be exercised if the yield curve shifted down.
      * Swaptions can be used to speculate on changes in interest rates. The investor would buy a receiver swaption if he expects rates to fall.
      Based on the results from Reichmann's binomial interest rate model, the value of a 2-year, $30 million European put option on LIBOR with a floor strike of 6% is closest to:

      Answer: B
  • Question 4
    • Carol Blackwell, CFA, has been hired to manage trust assets for Blanchard Investments. Blanchard's trust manager, Thaddeus Baldwin, CFA, has worked in the securities business for more than 50 years. On Blackwell's first day at the office, Baldwin gives her several instructions.
      Instruction 1: Limit risk by avoiding stock options.
      Instruction 2: Above all, ensure that our clients' capital is kept safe.
      Instruction 3: We take pride in our low cost structure, so avoid unnecessary transactions.
      Instruction 4: Remember that every investment must have the quality to stand on its own.
      Baldwin realizes that many of the firm's practices and policies would benefit from a compliance check. Because Blackwell recently received her CFA charter, Baldwin tells her she is the 'perfect person to work with the compliance officer to update the policy on proxy voting and the procedures to comply with Standard VI(B) Priority of Transactions.' Baldwin also wants Blackwell to evaluate whether the firm wants to, or can, claim compliance with the soft dollar standards. Baldwin hands Blackwell a handwritten outline he created, which includes the following statements:
      Statement 1: CFA Institute's soft-dollar rules are not mandatory. In any case, ' client brokerage can be used to pay for a portion of mixed-use research.
      Statement 2: Investment firms can use client brokerage to purchase research that does not immediately benefit the client. Commissions generated by outside trades are considered soft dollars, but commissions from internal trading desks are not.
      During a local society luncheon, Blackwell is seated next to CFA candidate Lucas Walters, who has been assigned the task of creating a compliance manual for Borchard & Sons, a small brokerage firm. Walters asks for her advice.
      When Walters returns to work, he is apprised of the following situation: Borchard & Sons purchased 25,000 shares of CBX Corp. for equity manager Quintux Quantitative just minutes before the money manager called back and said it meant to buy 25,000 shares of CDX Corp. Borchard then purchased CDX shares for Quintux, but not before shares of CBX Corp. declined by 1.5%. The broker is holding the CBX shares in its own inventory.
      Borchard proposes three methods for dealing with the trading error.
      Method 1: Quintux directs additional trades to Borchard worth a dollar value equal to the amount of the trading loss.
      Method 2: Borchard receives investment research from Quintux in exchange for Borchard covering the costs of the trading error.
      Method 3: Borchard transfers the ordered CBX shares in its inventory to Quintux, which allocates them to all of its clients on a pro-rata basis.
      When updating the proxy-voting policy to conform to CFA Institute recommendations, which of the following recommendations is least appropriate for Blanchard to adopt?

      Answer: B
  • Question 5
    • Shirley Nolte, CFA, is a portfolio manager for McHugh Investments. Her portfolio includes 5,000 shares of Pioneer common stock (ticker symbol PNER), which is currently trading at $40 per share. Pioneer is an energy and petrochemical business that operates or markets its products in the United States, Canada, Mexico, and over 100 other countries around the world. Pioneer's core business is the exploration, production, and transportation of crude oil and natural gas. Pioneer also manufactures and markets petroleum products, basic petrochemicals, and a variety of specialty products.
      Nolte would like to fully hedge her exposure to price fluctuations in Pioneer common stock over the next 90 days. She determines that the continuously compounded risk-free rate is 5%. She also gathers some information on exchange-traded options available on Pioneer stock. This data is shown in Exhibit 1.

      69

      From this data, she determines that the put option deltas are equal to:
      * 1 -month put option delta = -0.46.
      * 3-month put option delta = -0.36
      * 6-month put option delta - - 0.29.
      * 9-month put option delta = -0.17.
      She also concludes that the 9-month put option is mispriced relative to the 9-month call option, and an arbitrage opportunity is possible, but that the 3-month put option is correctly priced relative to its comparable call option. She also estimates the gamma of the 3-month call option to be 0.023.
      In an unrelated transaction, Nolte is also considering the purchase of a put option on a futures contract with an exercise price of $22. Both the option and the futures contract expire in six months. The call price is $1 and the futures price today is $20.
      Which of the following positions will best delta hedge Nolte's long position in Pioneer?

      Answer: A
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