CFA Program Level II Examination Practice Test
Level II practice covers valuation and analysis across financial reporting, equity and fixed-income investments, derivatives, and portfolio concepts. The sample questions apply formulas and accounting principles to short scenarios, including option payoffs, pension obligations, foreign-currency translation, earnings per share, leverage, and interest coverage.
Exam overview
About the CFA Program Level II Examination Exam
The question bank samples analytical tasks such as calculating intrinsic value at expiration, deriving ratios from financial statements, and determining how transactions affect reported amounts. Other scenarios ask you to interpret defined-benefit plan deficits, translate a foreign subsidiary’s assets and liabilities, and compute weighted-average shares for basic earnings per share. Investment topics include mean-variance portfolio selection and managing a pension fund’s exposure to interest-rate changes through bond portfolio characteristics. These exercises emphasize selecting relevant inputs, applying a stated assumption, and distinguishing a calculation from its accounting or investment interpretation. Use them to identify whether errors arise from formula setup, timing, measurement, or the meaning of a financial measure.
Sample Practice Questions
Review a selection from this exam's published US Practice Tests practice bank.
A pension fund has a long investment horizon and a predictable stream of future benefit payments. Which bond portfolio characteristic most directly helps reduce sensitivity of the fund’s surplus to small parallel interest-rate changes?
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Correct answer: ADuration matching aims to align the interest-rate sensitivity of assets and liabilities. For small parallel rate changes, matching their durations can help stabilize the fund’s surplus, although it does not eliminate all risks.
A firm has 10 million shares outstanding at the start of the year and earns net income of $24 million. It issues 2 million shares on July 1. Assuming no other share changes, what is basic earnings per share for the year?
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Correct answer: BWeighted-average shares are 10 million for six months plus 12 million for six months: (10 × 0.5) + (12 × 0.5) = 11 million. Basic EPS is $24 million ÷ 11 million = approximately $2.18.
A company’s functional currency is the currency of its primary economic environment. It has a foreign subsidiary whose functional currency is different from the parent’s presentation currency. Under the current rate method, at what rate are the subsidiary’s assets and liabilities generally translated into the presentation currency?
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Correct answer: CUnder the current rate method, assets and liabilities are translated at the closing rate at the reporting date. Income statement items are generally translated at transaction-date rates or an appropriate average rate, while translation adjustments are generally reported in other comprehensive income.
A firm’s debt-to-equity ratio is 0.5, and its total debt is $150 million. Assuming the ratio uses total debt divided by total shareholders’ equity, what is total shareholders’ equity?
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Correct answer: CDebt-to-equity = debt / equity. Thus, 0.5 = $150 million / equity, so equity = $150 million / 0.5 = $300 million.
A company has 100 million shares outstanding and declares a 10% stock dividend. Ignoring other share changes, what is the number of shares outstanding immediately after the stock dividend?
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Correct answer: CA 10% stock dividend issues additional shares equal to 10% of the existing 100 million shares, or 10 million shares. The resulting total is 110 million shares.
A call option has a strike price of $50 and expires when the underlying share price is $57. Ignoring the option premium, what is the call's intrinsic value per share at expiration?
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Correct answer: BAt expiration, a call's intrinsic value is the greater of zero or the underlying price minus the strike price: max(0, $57 − $50) = $7.
A company sells equipment for $50,000 cash. The equipment has a carrying amount of $42,000 immediately before sale. What gain should the company recognize on disposal, before considering taxes or transaction costs?
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Correct answer: BThe gain on disposal is proceeds minus carrying amount: $50,000 − $42,000 = $8,000.
How to use this practice test
The free US Practice Tests practice bank contains 50 published questions. Each session presents up to 20 random questions, then shows your results. Use a session to check calculation accuracy and identify which concepts—such as financial reporting, valuation, or portfolio risk—need more targeted review.
Preparation tips
- For ratio questions, write the numerator and denominator explicitly before substituting figures; distinguish debt-to-equity from coverage measures.
- Practice option-payoff calculations by separating intrinsic value from the premium and applying the stated expiration price and strike.
- For basic EPS, account for the portion of the reporting period each share issuance was outstanding when calculating weighted-average shares.
- Compare pension plan assets with the defined-benefit obligation, and identify whether the question asks for a deficit, funded status, or balance-sheet presentation.
- For portfolio-risk scenarios, connect bond characteristics such as duration to the sensitivity of assets and liabilities to interest-rate movements.