What are the differences between the Three Levels of the CFA® Exam?

The three CFA exam levels are progressive, and you need to pass the lower level to advance to the next level. In this article, we look at the differences between the different levels of the CFA curriculum.

CFA Level I exam

The focus of the CFA level I exam is on knowledge and comprehension of fundamental financial analyst concepts. The curriculum focuses on definitions, introduction to financial analysis, and key formulas, and you should recall these from memory. Additionally, you should grasp ethical and professional standards and various investment tools.

The CFA level I exam will be offered four times a year. There are additional exam windows in 2021 to accommodate candidates whose exams were postponed or cancelled because of COVID 19.

The level I exam formula is computer-based. The exam duration will be five and a half hours, including 30 minutes for the tutorial, two 135 minute exam sessions, and an optional 30-minute break.

The CFA Level I curriculum covers ten topics, each with a different weight in the exam, which change regularly, 19 study sessions, and 57 readings. The test will focus on your knowledge and comprehension of these ten topics.

The most recent topics and their weights shared by the CFA Institute in 2020 are;

• Ethical and professional standards – 15 -20%
• Quantitative methods – 8 -12%
• Economics – 8 -12%
• Financial reporting and analysis – 13 -17%
• Corporate finance – 8 -12%
• Equity investments – 10 -12%
• Fixed income – 10 -12%
• Derivatives – 5 -8%
• Alternative investments – 5 -8%
• Portfolio management – 5 -8%

According to the CFA Institute, level I has the lowest pass rates. The pass rates for the 2019 exams were: 41% for the June exam window and 42% for the December exam window.

CFA level II exam

CFA level II exams focus on testing how you apply financial analysis knowledge to real situations. You should have the skills to use analysis tools and relationships to assess financial data and determine asset value.

The level II exams include questions organized as vignettes consisting of in-depth testing on a single topic. These questions test your understanding of financial analysis using tables, texts, or financial statements to describe a financial situation which you should solve.

The topics in CFA level II are the same as those in level I but with a different range of topic weights. The key subjects include fixed income, equity valuation, and financial reporting. In addition, there are only 48 readings and 14 study sessions.

New exam windows for level II in 2021 are May, August, and November. According to the CFA Institute, the level II pass rate was 44% in 2019.

CFA level III exam

CFA level III is the most advanced level of CFA, which requires you to demonstrate the ability to carry out financial analysis, make judgment calls and explain them. In addition, the curriculum excludes financial reporting and analysis, corporate finance, and quantitative methods. There are 16 study sessions and 38 readings in CFA Level III.

However, the most significant difference between CFA level III and level II and level I is the exam format. The first part of the Level III exam consists of eight to twelve response questions, while the second part has vignettes with multiple-choice questions.

Response questions are open-ended, which require constructed answers on a blank paper without multiple choices to pick from. Furthermore, level III can integrate two or more topics, unlike level II and level I questions.

The topics with the most weight are portfolio management (35-40%), fixed income (15-20%), equity (10-15%), and ethics (10-15%).

However, CFA level III has the highest pass rate, with more than half the students passing the exam compared to the other two levels. The pass rate in 2019 was 56%.

In conclusion, all CFA levels curricula share similar topics. You need to put in at least 300 hours of study and use a CFA-approved financial calculator. The significant differences are the exam formats and question structure. Level I exam is computer-based with 90 multiple questions, while level II includes vignettes with multiple-choice questions. On the other hand, level III consists of both constructed response questions and vignettes. In addition, the questions in level III integrate multiple topics.

Level I has the lowest pass rate, while level III has the highest pass rate, with an averagely of over half the candidates passing the exam.

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