Detailed Exam Domain Coverage

Ethical and Professional Standards (10%)
- Topics: Code of Ethics, Standards of Professional Conduct, Application of Standards, Research Objectivity.
Quantitative Methods (10%)
- Topics: Multiple Regression, Time-Series Analysis, Machine Learning, Big Data Projects.
Economics (10%)
- Topics: Currency Exchange Rates, Economic Growth, Economics of Regulation.
Financial Reporting and Analysis (10%)
- Topics: Intercorporate Investments, Employee Compensation, Multinational Operations, Quality of Financial Reports.
Corporate Issuers (10%)
- Topics: Capital Structure, Mergers and Acquisitions, Dividend Policy, Corporate Governance.
Equity Investments (10%)
- Topics: Free Cash Flow Valuation, Market-Based Valuation, Residual Income, Private Company Valuation.
Fixed Income (10%)
- Topics: Term Structure of Interest Rates, Arbitrage-Free Valuation, Bonds with Embedded Options, Credit Analysis Models.
Derivatives (10%)
- Topics: Pricing and Valuation of Forwards, Futures, Swaps, and Options.
Alternative Investments (10%)
- Topics: Real Estate Investments, Private Equity, Commodities.
Portfolio Management (10%)
- Topics: Exchange-Traded Funds, Multifactor Models, Active Portfolio Management, Trading Costs.

Course Description

Passing the CFA Program Level II exam requires a massive shift in strategy compared to Level I. Instead of standalone questions, you are now tested on your ability to read through complex vignettes, synthesize multiple pieces of data, and apply advanced investment tools. I designed this course specifically to bridge the gap between reading the curriculum and actually performing under pressure in the 4-hour-24-minute computer-based testing environment.

I have spent months analyzing the testing format to build a realistic, rigorous question bank. Every single question in this course reflects the exact weighting, difficulty, and vignette-style formatting you will see on test day. My goal is to ensure you do not encounter any surprises. By working through these comprehensive scenarios across all ten domains—from Financial Reporting and Analysis to Derivatives—you will build the stamina and analytical sharpness required to pass.

I know how frustrating it is to get a question wrong and not understand why. That is why I have provided highly detailed explanations for every single choice, walking you through the exact calculations and logic.

Sample Practice Questions Preview

Here is a glimpse of the depth and quality of the questions I have included in the course:

Question 1 (Equity Investments): An analyst is calculating the Free Cash Flow to Equity (FCFE) for a manufacturing firm. For the most recent fiscal year, the firm reported Net Income of $1,500,000, Depreciation of $400,000, a decrease in Net Working Capital of $150,000, Capital Expenditures of $600,000, and Net Borrowing of $200,000. What is the firm’s FCFE?
- A) $1,050,000
- B) $1,250,000
- C) $1,350,000
- D) $1,650,000
- E) $1,850,000
- F) $2,250,000
- Correct Answer: D
- Explanations:
  - Why A is incorrect: This subtracts depreciation instead of adding it back. Depreciation is a non-cash charge that must be added to Net Income.
  - Why B is incorrect: This assumes the decrease in net working capital is a cash outflow. A decrease in NWC actually frees up cash and should be added.
  - Why C is incorrect: This omits the Net Borrowing component. FCFE must account for cash flows available to equity holders, which includes net new debt.
  - Why D is correct: The formula is FCFE = Net Income + Depreciation + Decrease in NWC - CapEx + Net Borrowing. Calculation: $1,500,000 + $400,000 + $150,000 - $600,000 + $200,000 = $1,650,000.
  - Why E is incorrect: This incorrectly adds CapEx instead of subtracting it. Capital expenditures are cash outflows.
  - Why F is incorrect: This adds CapEx and assumes the NWC decrease is twice its actual size.
Question 2 (Ethical and Professional Standards): A portfolio manager at an asset management firm receives an all-expenses-paid trip from a corporate issuer to visit their new offshore drilling facility. The facility is remote, and commercial travel is not available. The manager accepts the trip, stays in a luxury resort paid for by the issuer, and subsequently writes a favorable report. Which of the following best describes the violation of the CFA Institute Standards of Professional Conduct?
- A) No violation occurred because commercial travel was unavailable.
- B) Violation of Standard I(B) Independence and Objectivity due to accepting the luxury resort stay.
- C) Violation of Standard V(A) Diligence and Reasonable Basis for writing a favorable report.
- D) Violation of Standard III(B) Fair Dealing.
- E) Violation of Standard II(A) Material Nonpublic Information.
- F) Violation of Standard I(B) Independence and Objectivity strictly for accepting the flight.
- Correct Answer: B
- Explanations:
  - Why A is incorrect: While accepting the chartered flight might be acceptable due to the lack of commercial options, accepting luxury accommodations compromises objectivity.
  - Why B is correct: Standard I(B) Independence and Objectivity requires members to use reasonable care to avoid gifts that compromise independence. While the flight to a remote location is permissible, the luxury resort stay paid by the issuer crosses the line and creates a conflict of interest.
  - Why C is incorrect: The prompt does not provide evidence that the report lacked diligence or a reasonable basis, only that a conflict of interest existed.
  - Why D is incorrect: Fair Dealing relates to treating clients fairly when disseminating recommendations or taking investment action, which is not the issue here.
  - Why E is incorrect: There is no indication that the manager received or traded on material nonpublic information.
  - Why F is incorrect: Members may accept flights to remote locations if no commercial alternatives exist; the violation lies in the luxury accommodations.
Question 3 (Corporate Issuers): A company with a target capital structure of 40% debt and 60% equity has a capital budget of $5,000,000 for the upcoming year. The company expects to generate $4,000,000 in net income. If the company strictly follows a residual dividend policy, what is the expected dividend payout ratio?
- A) 10%
- B) 25%
- C) 40%
- D) 50%
- E) 60%
- F) 75%
- Correct Answer: B
- Explanations:
  - Why A is incorrect: This results from miscalculating the equity portion of the capital budget as 90% rather than 60%.
  - Why B is correct: Under a residual dividend policy, dividends are paid out of earnings left over after funding the equity portion of the capital budget. Equity needed = $5,000,000 × 0.60 = $3,000,000. Residual earnings available for dividends = Net Income - Equity needed = $4,000,000 - $3,000,000 = $1,000,000. Dividend payout ratio = Dividends / Net Income = $1,000,000 / $4,000,000 = 25%.
  - Why C is incorrect: This represents the debt portion of the target capital structure, not the dividend payout ratio.
  - Why D is incorrect: This assumes the capital budget is funded entirely by equity (Net income - CapEx = negative, requiring external funds, yielding no dividend).
  - Why E is incorrect: This is the equity weight of the capital structure, confusing the target weight with the payout ratio.
  - Why F is incorrect: This implies dividends of $3,000,000, which is the amount of retained earnings needed for the capital budget, exactly the reverse of the residual policy calculation.

Course Features

Welcome to the Mock Exam Practice Tests Academy to help you prepare for your CFA Program Level II Exam.
You can retake the exams as many times as you want
This is a huge original question bank
You get support from instructors if you have questions
Each question has a detailed explanation
Mobile-compatible with the Udemy app

I hope that by now you're convinced! And there are a lot more questions inside the course.