LAST UPDATED: Oct 1, 2020

CFA Exam: Level 2 / Topics


Key Things to Know about Level 2 CFA® Exam Topics


There are 10 level 2 CFA exam topics that go over 3000 pages in your CFA Program curriculum. As soon as you know it, you may start asking yourself questions such as:

Should I stick to the topic sequence as it is in the curriculum?

Should I treat all topics equally or are some topics more important than the others?

What should I know about a topic when I start to study it?

In this post, we try to explain what level 2 topics are all about. Our aim is to help you answer the questions you may have.


All 10 Level 2 CFA Exam Topics

During your level 2 CFA exam, you will be tested on:

  1. Ethical and Professional Standards (Ethics )
  2. Quantitative Methods (QM )
  3. Economics (ECO )
  4. Financial and Reporting Analysis (FRA )
  5. Corporate Finance (CF )
  6. Equity Investments (EI )
  7. Fixed Income (FI )
  8. Derivative Investments (DI )
  9. Alternative Investments (AI )
  10. Portfolio Management (PM )

This is how the topics are sequenced in your level 2 curriculum. But if you know more about the topics, it’s likely you’ll want to make changes to this order. Below, we describe all 10 level 2 topics in more detail and suggest our topic sequence. First, however, we give the key info in a table to enable easy analysis of the topics, their exam weights, number of readings to study or formulas to memorize.



Level 2 CFA Exam Topic Short Description Topic Weight Minimum No. of Questions Maximum No. of Questions No. of Readings No. of Formulas
Ethics Moral spine vs investment environment 10-15% 12 18 3 None, which is an exception!
Quantitative Methods Regression & time series analysis 5-10% 6 12 6 nearly 50
Economics Currencies + growth models + market regulations 5-10% 6 12 3 nearly 50
Financial Reporting and Analysis Financial statements under close scrutiny 10-15% 12 18 6 nearly 40
Corporate Finance Corporate governance
& decision-making		 5-10% 6 12 5 around 40
Equity Plenty of valuation models for equity 10-15% 12 18 8 around 100
Fixed Income Bond valuation, risks & expected returns 10-15% 12 18 5 around 60
Derivatives Forwards vs futures
vs options vs swaps		 5-10% 6 12 2 around 40
Alternative Investments Real estate & private equity valuation 5-10% 6 12 4 around 20
Portfolio Management Portfolio: structure, risks & returns 10-15% 12 18 6 around 70

Level 2 CFA exam topics are exactly the same as level 1 topics. So, there are still 10 topics you need to study (this changes at the level 3 CFA exam). Also, the order of the topics in your level 2 curriculum does not change when compared to the level 1 curriculum. What changes though are topic weights.

The exam weights of level 2 topics are given in ranges. It means that the exact number of questions on a certain topic may vary from exam to exam. Currently, there are only two types of weight ranges, namely 5-10% for the less important topics and 10-15% for the more important topics. In the past, however, Equity was given the greatest weight. Because the number of readings didn't change, you may expect Equity to be still very important. That's why we recommend our users to start with Equity and take it rather seriously. When you choose the recommended Soleadea Topic Sequence while setting up your free CFA exam study plan, you'll get Equity scheduled upfront, just after Ethics.



Level 2 CFA exam questions take the form of the so-called item sets, i.e. short descriptions (vignettes) followed by a number of multiple-choice questions. In your Dec 2020 level 2 exam, you'll have from 10 to 15 vignettes supporting 60 multiple-choice questions per exam session (i.e. 20-30 vignettes supporting 120 multiple-choice questions altogether). The minimum and maximum number of questions for each topic is given in the table above. An item set may have from 4 to 6 multiple-choice questions. We write more about level 2 item sets here . Also, as of 2021, the number of questions will most probably get reduced with the level 2 CFA exam moving to CBT


Level 2 CFA Exam Topics: Description

Ethical and Professional Standards (Ethics)

Topic Level Learning Outcome:*

*All Topic Level Learning Outcomes are cited from the Level 2 CFA® Program curriculum.

"The candidate should be able to demonstrate a thorough knowledge of the CFA Institute Code of Ethics and Standards of Professional Conduct, identify violations of the Code and Standards, and recommend appropriate corrective measures."

Your goal: Being a moral person can help but is not enough! You need to learn to interpret investment situations, diagnose ethical challenges and be able to properly react to them.

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

LEVEL 2 TOPICS: Ethics

Your goal: Being a moral person can help but is not enough! You need to learn to interpret investment situations, diagnose ethical challenges and be able to properly react to them.

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

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

Quantitative Methods (QM)

Topic Level Learning Outcome:*

"The candidate should be able to explain regression, time series analysis, and simulation and their uses in investment decision-making. The candidate should be able to interpret the results of a regression, time-series analysis, or simulation."

Your goal: Surely regression or time-series analysis take the lead here. But it’s not about the concepts per se. It’s all very statistical.

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

Your goal: Surely regression or time-series analysis take the lead here. But it’s not about the concepts per se. It’s all very statistical.

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

LEVEL 2 TOPICS: Quantitative Methods

Economics (ECO)

Topic Level Learning Outcome:*

"The candidate should be able to explain and demonstrate the use of economic concepts and methods in the determination and forecasting of currency exchange rates, the analysis of economic growth, and the analysis of business and financial market regulation."

Your goal: Explore the economy to find out how its elements work together.

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

LEVEL 2 TOPICS: Economics

Your goal: Explore economy to find out how its elements work together.

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

Financial and Reporting Analysis (FRA)

Topic Level Learning Outcome:*

"The candidate should be able to analyze the effects of financial reporting choices on financial statements and ratios. The candidate also should be able to analyze and interpret financial statements and accompanying disclosures and to evaluate financial reporting quality."

Your goal: Learn to see beneath the surface. You can do that if you’re able to interpret, analyze and judge the numbers reported 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

Your goal: Learn to see beneath the surface. You can do that if you’re able to interpret, analyze and judge the numbers reported 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

LEVEL 2 TOPICS: Financial and Reporting Analysis

Corporate Finance (CF)

Topic Level Learning Outcome:*

"The candidate should be able to evaluate capital budget projects, capital structure policy, dividend policy, corporate governance, and mergers and acquisitions."

Your goal: Learn how and why decisions about investment projects, dividends, share repurchase and M&A are made by a company.

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

LEVEL 2 TOPICS: Corporate Finance

Your goal: Learn how and why decisions about investment projects, dividends, share repurchase and M&A are made by a company.

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

Equity Investments (EI)

Topic Level Learning Outcome:*

"The candidate should be able to analyze and evaluate equity securities using appropriate valuation concepts and techniques. The candidate should also be able to estimate risk and expected return of equities in global contexts."

Your goal: In-depth knowledge of various valuation models and their application in practice. Can be strenuous...

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

Your goal: In-depth knowledge of various valuation models and their application in practice. Can be strenuous...

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

LEVEL 2 TOPICS: Equity Investments


Fixed Income (FI)

Topic Level Learning Outcome:*

"The candidate should be able to estimate the risks and expected returns for fixed income instruments, analyze the term structure of interest rates and yield spreads, and evaluate fixed income instruments with embedded options and unique features."

Your goal: The mechanisms behind fixed-income instruments to take in. Harder than you could have imagined.

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

LEVEL 2 TOPICS: Fixed Income

Your goal: The mechanisms behind fixed-income instruments to take in. Harder than you could have imagined.

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

Derivative Investments (DI)

Topic Level Learning Outcome:*

"The candidate should be able to estimate the value of futures, forwards, options, and swaps and demonstrate how they may be used in various strategies."

Your goal: Learn about the valuation and pricing of derivatives. To do that, you’ll need to get to know many different models.

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

Your goal: Learn about the valuation and pricing of derivatives. To do that, you’ll need to get to know many different models.

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

LEVEL 2 TOPICS: Derivatives

Alternative Investments (AI)

Topic Level Learning Outcome:*

"The candidate should be able to analyze and evaluate real estate and private equity using appropriate valuation concepts and techniques."

Your goal: Learn non-standard features of alternative investments and know how to value them.

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

LEVEL 2 TOPICS: Alternatives

Your goal: Learn non-standard features of alternative investments and know how to value them.

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

Portfolio Management (PM)

Topic Level Learning Outcome:*

"The candidate should be able to explain and demonstrate the use of portfolio theory in risk and return estimation, security selection, and other practical applications. The candidate should also be able to explain the portfolio management process."

Your goal: Get to know different types of portfolios plus how to measure their risks and estimate their returns.

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

Your goal: Get to know different types of portfolios plus how to measure their risks and estimate their returns.

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

LEVEL 2 TOPICS: Portfolio Management

Summing Up Level 2 Topics

That’s a lot of information to process! But surely it can help you prepare well for your level 2 exam. You've got some key terms enumerated and topic learning outcomes stated. All this info is what you need to better handle your level 2 curriculum .

The order in which the topics are described above is like in your level 2 curriculum. At Soleadea, we suggest changing the topic sequence as follows:

ETH - EI - FI - DI - FRA - CF - QM - PM - ECO - AI - ETH


This way you get the most important (e.g. Equity) and difficult (e.g. Derivatives) topics scheduled at the beginning, which means you should be able to cover them quite thoroughly when preparing for your level 2 exam. Ethics is scheduled twice because as you know CFA Institute puts a great emphasis on Ethics. The less important topics are scheduled at the end. But even if it takes you too long to study the more important topics, there's always the time buffer in the form of the Final Review (scheduled in our CFA Exam Study Planner just before your exam; its length depends on when you start your prep; the sooner you start, the longer your Final Review). Summing up, you should be able to cover all the topics just in time for your exam. Crucially, you can make your own changes to the sequence of your topic readings using the drag&drop feature in the ALL WEEKS view!