CFA Level 2

Here you have the best Test Prep CFA Level 2 practice exam questions

  • You have 11 total questions to study from
  • Each page has 5 questions, making a total of 3 pages
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  • This questions were last updated on October 28, 2025
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Question 1 of 11
Glenda Garvey is interning at Samson Securities in the summer to earn money for her last semester of studies for her MBA. She took the Level 3 CFA® exam in
June but has not yet received her score. Garvey's work involves preparing research reports on small companies.
Garvey is at lunch with a group of co-workers. She listens to their conversation about various stocks and takes note of a comment from Tony Topel, a veteran analyst. Topel is talking about Vallo Engineering, a small stock he has tried repeatedly to convince the investment director to add to the monitored list. While the investment director does not like Vallo, Topel has faith in the company and has gradually accumulated 5,000 shares for his own account. Another analyst, Mary
Kennedy, tells the group about Koral Koatings, a paint and sealant manufacturer. Kennedy has spent most of the last week at the office doing research on Koral.
She has concluded that the stock is undervalued and consensus earnings estimates are conservative. However, she has not filed a report for Samson, nor does she intend to. She said she has purchased the stock for herself and advises her colleagues to do the same. After she gets back to the office, Garvey purchases 25 shares of Vallo and 50 shares of Koral for herself.
Samson pays its interns very little, and Garvey works as a waitress at a diner in the financial district to supplement her income. The dinner crowd includes many analysts and brokers who work at nearby businesses. While waiting tables that night, Garvey hears two employees of a major brokerage house discussing
Metrona, a nanotechnology company. The restaurant patrons say that the broker's star analyst has issued a report with a buy rating on Metrona that morning. The diners plans to buy the stock the next morning. After Garvey finishes her shift, restaurant manager Mandy Jones, a longtime Samson client, asks to speak with her. Jones commends Garvey for her hard work at the restaurant, praising her punctuality and positive attitude, and offers her two tickets to a Yankees game as a bonus.
The next morning, Garvey buys 40 shares of Metrona for her own account at the market open. Soon afterward, she receives a call from Harold Koons, one of
Samson's largest money-management clients. Koons says he got Garvey's name from Bertha Witt, who manages the Koons' account. Koons wanted to reward the analyst who discovered Anvil Hammers, a machine-tool company whose stock soared soon after it was added to his portfolio. Garvey prepared the original report on Anvil Hammers. Koons offers Garvey two free round-trip tickets to the city of her choice. Garvey thanks Koons, then asks her immediate supervisor, Karl
May, about the gift from Koons but does not mention the gift from Jones. May approves the Koons' gift.
After talking with May, Garvey starts a research project on Zenith Enterprises, a frozen-juice maker. Garvey's gathers quarterly data on the company's sales and profits over the past two years. Garvey uses a simple linear regression to estimate the relationship between GDP growth and Zenith's sales growth. Next she uses a consensus GDP estimate from a well-known economic data reporting service and her regression model to extrapolate growth rates for the next three years.
Later that afternoon, Garvey attends a company meeting on the ethics of money management. She listens to a lecture in which John Bloomquist, a veteran portfolio manager, talks about his job responsibilities. Garvey takes notes that include the following three statements made by Bloomquist:
Statement 1: I'm not a bond expert, and I've turned to a colleague for advice on how to manage the fixed-income portion of client portfolios.
Statement 2: I strive not to favor either the remaindermen or the current-income beneficiaries, instead I work to serve both of their interests.
Statement 3: All of my portfolios have target growth rates sufficient to keep ahead of inflation.
Garvey is not working at the diner that night, so she goes home to work on her biography for an online placement service. In it she makes the following two statements:
Statement 1: I'm a CFA Level 3 candidate, and I expect to receive my charter this fall. The CFA program is a grueling, 3-part, graduate-level course, and passage requires an expertise in a variety of financial instruments as well as knowledge of the forces that drive our economy and financial markets.
Statement 1: I expect to graduate with my MBA from Braxton College at the end of the fall semester. As both an MBA and a CFA, I'll be in high demand. Hire me now while you still have the chance.
During the lunch conversation, which CFA Institute Standard of Professional Conduct was most likely violated?
    Correct Answer: B

Question 2 of 11
Pat Wilson, CFA, is the chief compliance officer for Excess Investments, a global asset management and investment banking services company. Wilson is reviewing two investment reports written by Peter Holly, CFA, an analyst and portfolio manager who has worked for Excess for four years. Holly's first report under compliance review is a strong buy recommendation for BlueNote Inc., a musical instrument manufacturer. The report states that the buy recommendation is applicable for the next 6 to 12 months with an average level of risk and a sustainable price target of $24 for the entire time period. At the bottom of the report, an e- mail address is given for investors who wish to obtain a complete description of the firm's rating system. Among other reasons supporting the recommendation,
Holly's report states that expected increases in profitability as well as increased supply chain efficiency provide compelling support for purchasing BlueNote.
Holly informs Wilson that he determined his conclusions primarily from an intensive review of BlueNote's filings with the SEC but also from a call to one of
BlueNote's suppliers who informed Holly that their new inventory processing system would allow for more efficiency in supplying BlueNote with raw materials.
Holly explains to Wilson that he is the only analyst covering BlueNote who is aware of this information and that he believes the new inventory processing system will allow BlueNote to reduce costs and increase overall profitability for several years to come.
Wilson must also review Holly's report on BigTirae Inc., a musical promotions and distribution company. In the report, Holly provides a very optimistic analysis of
BigTime's fundamentals. The analysis supports a buy recommendation for the company. Wilson finds one problem with Holly's report on BigTime related to Holly's former business relationship with BigTime Inc. Two years before joining Excess, Holly worked as an investment banker and received 1,000 restricted shares of
BigTime as a result of his participation in taking the company public. These facts are not disclosed in the report but are disclosed on Excess Investment's Web site. Wilson decides, however, that the timeliness of the information in the report warrants overlooking this issue so that the report can be distributed.
Just before the report is issued. Holly mentions to Wilson that BigTime unknowingly disclosed to him and a few other analysts who were wailing for a conference call to begin that the company is planning to restructure both its sales staff and sales strategy and may sell one of its poorly performing business units next year.
Three days after issuing his report on BigTime, which caused a substantial rise in the price of BigTime shares, Holly sells all of the BigTirne shares out of both his performance fee-based accounts and asset-based accounts and then proceeds to sell all of the BigTime shares out of his own account on the following day. Holly obtained approval from Wilson before making the trades.
Just after selling his shares in BigTime, Holly receives a call from the CEO of BlueNote who wants to see if Holly received the desk pen engraved with the
BlueNote company logo that he sent last week and also to offer two front row tickets plus limousine service to a sold-out concert for a popular band that uses
BlueNote's instruments. Holly confirms that the desk pen arrived and thanks the CEO for the gift and tells him that before he accepts the concert tickets, he will have to check his calendar to see if he will be able to attend. Holly declines the use of the limousine service should he decide to attend the concert.
After speaking with the CEO of BlucNote, Holly constructs a letter that he plans to send by e-mail to all of his clients and prospects with e-mail addresses and by regular mail to all of his clients and prospects without e-mail addresses. The letter details changes to an equity valuation model that Holly and several other analysts at Excess use to analyze potential investment recommendations. Holly's letter explains that the new model, which will be put into use next month, will utilize Monte Carlo simulations to create a distribution of stock values, a sharp contrast to the existing model which uses static valuations combined with sensitivity analysis. Relevant details of the new model are included in the letter, but similar details about the existing model are not included. The letter also explains that management at Excess has decided to exclude alcohol and tobacco company securities from the research coverage universe. Holly's letter concludes by stating that no other significant changes that would affect the investment recommendation process have occurred or are expected to occur in the near future.
In his letter to clients explaining the change in the valuation model, did Holly violate anv CFA Institute Standards of Professional Conduct?
    Correct Answer: C

Question 3 of 11
Stanley Bostwick, CFA, is a business services industry analyst with Mortonworld Financial. Currently, his attention is focused on the 2008 financial statements of
Global Oilfield Supply, particularly the footnote disclosures related to the company's employee benefit plans. Bostwick would like to adjust the financial statements to reflect the actual economic status of the pension plans and analyze the effect on the reported results of changes in assumptions the company used to estimate the projected benefit obligation (PBO) and net pension cost. But first, Bostwick must familiarize himself with the differences in the accounting for defined contribution and defined benefit pension plans.
Global Oilfield's financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). Excerpts from the company's annual report are shown in the following exhibits.
Exam CFA Level 2: Question 3 - Image 1
Exam CFA Level 2: Question 3 - Image 2
What was the most likely cause of the actuarial gain reported in the reconciliation of the projected benefit obligation for the year ended 2008?
    Correct Answer: B

Question 4 of 11
Kevin Rathbun, CFA, is a financial analyst at a major brokerage firm. His supervisor, Elizabeth Mao, CFA, asks him to analyze the financial position of Wayland,
Inc. (Wayland), a manufacturer of components for high quality optic transmission systems. Mao also inquires about the impact of any unconsolidated investments.
On December 31,2007, Wayland purchased a 35% ownership interest in a strategic new firm called Optimax for $300,000 cash. The pre-acquisition balance sheets of both firms are found in Exhibit 1.
Exam CFA Level 2: Question 4 - Image 1
On the acquisition date, all of Optimax's assets and liabilities were stated on its balance sheet at their fair values except for its property, plant, and equipment
(PP&E), which had a fair value of $1.2 million. The remaining useful life of the PP&E is ten years with no salvage value. Both firms use the straight-line depreciation method.
For the year ended 2008, Optimax reported net income of $250,000 and paid dividends of $100,000.
During the first quarter of 2009, Optimax sold goods to Wayland and recognized $15,000 of profit from the sale. At the end of the quarter, half of the goods purchased from Optimax remained in Wayland's inventory.
Wayland currently uses the equity method to account for its investment in Optimax. However, given the potential significance of the investment in the future,
Rathbun believes that a proportionate consolidation of Optimax may give a clearer picture of the financial and operating characteristics of Wayland.
Rathbun also notes that Wayland owns shares in Vanry, Inc. (Vanry). Rathbun gathers the data in Exhibit 2 from Wayland's financial statements. The year-end portfolio value is the market value of all Vanry shares held on December 31. All security transactions occurred on July 1, and the transaction price is the price that
Wayland actually paid for the shares acquired. Vanry pays a cash dividend of $1 per share at the end of each year. Wayland expects to sell its investment in
Vanry in the near term and accounts for it as held-for-trading.
Wayland owns some publicly traded bonds of the Rotor Corporation that it reports as held-to-maturity securities.
What amount should Wayland report in its balance sheet as a result of its investment in Optimax at the end of 2008?
    Correct Answer: B

Question 5 of 11
William Jones, CFA, is analyzing the financial performance of two U.S. competitors in connection with a potential investment recommendation of their common stocks. He is particularly concerned about the quality of each company's financial results in 2007-2008 and in developing projections for 2009 and 2010 fiscal years.
Adams Company has been the largest company in the industry but Jefferson Inc. has grown more rapidly in recent years. Adams's net sales in 2004 were 33-
1/3% higher than Jefferson but were only 18% above Jefferson in 2008. During 2008, a slowing U.S. economy led to lower domestic revenue growth for both companies. The 10-k reports showed overall sales growth of 6% for Adams in 2008 compared to 7% for 2007 and 9% in 2006. Jefferson's gross sales rose almost
12% in 2008 versus 8% in 2007 and 10% in 2006. In the past three years, Jefferson has expanded its foreign business at a faster pace than Adams. In 2008,
Jefferson's growth in overseas business was particularly impressive. According to the company's 10-k report, Jefferson offered a sales incentive to overseas customers. For those customers accepting the special sales discount, Jefferson shipped products to specific warehouses in foreign ports rather than directly to those customers' facilities.
In his initial review of Adams's and Jefferson's financial statements, Jones was concerned about the quality of the growth in Jefferson's sales, considerably higher accounts receivables, and the impact of overall accruals on earnings quality. He noted that Jefferson had instituted an accounting change in 2008. The economic life for new plant and equipment investments was determined to be five years longer than for previous investments. For Adams, he noted that the higher level of inventories at the end of 2008 might be cause for concern in light of a further slowdown expected in the U.S. economy in 2009.
The accompanying table shows financial data for both companies' Form 10-k reports for 2006-2008 used by Jones for his analysis. To evaluate sales quality, he focused on trends in sales and related expenses for both companies as well as cash collections and receivables comparisons. Inventory trends relative to sales and the number of days' sales outstanding in inventory were determined for both companies. Expense trends were examined for Adams and Jefferson relative to sales growth and accrual ratios on a balance sheet and cash flow basis were developed as overall measures of earnings quality.
Exam CFA Level 2: Question 5 - Image 1
The quality of earnings as measured by balance sheet based accruals ratios showed:
    Correct Answer: A