Tips for Studying for the CFA Exam
The CFA Program is a self-study, distance learning-based program that takes a generalist approach to investment analysis and portfolio management and emphasizes the highest ethical and professional standards.
The goal of the Candidate Body of Knowledge (CBOK) and the assigned CFA curriculum readings is to educate candidates on topics of importance to the investment profession. The CFA Institute strongly believes that you will gain a better understanding of a topic by reading the curriculum materials than by reading a summary of the reading. Reading only a summary risks fragmenting the topic and missing key points.
The CFA examination measures your degree of understanding of the assigned curriculum. This document provides tips for studying for the CFA exams (in general, as well as for each of the three examination levels) and tips that might improve your performance on exam day. This document is organized into several sections:
1. General Tips for Studying for the CFA® Examinations
2. Tips for Taking the Level I Multiple-Choice Examinations
3. Tips for Taking the Levels II and III Item Set Examinations
4. Tips for Taking the Level III Essay Examinations
5. Myths about the CFA Examinations
6. A Final Word
If you are taking the Level I examination, you might skip sections 3 and 4. If you are taking the Level II examination, you might skip section 4.
1. General Tips for Studying for the CFA® Examinations
The tips in this section are general advice for all three levels of the CFA examination. More specific tips are given below for taking the Level I multiple-choice examinations, the Level II and III item set examinations, and the Level III essay examinations.
• There is no secret to success on the CFA examinations:
o Preparation
• Minimum of 250 hours per level
• Read and study the material
• Focus on LOS – a CFA Institute contract with candidate
• Review
o Confidence
• Mindset – 70% is a fine score
• 100% is not the goal – passing is the goal
• Organize your study well in advance of the examination. Divide the material into manageable units (for example, by Study Session) and then allocate a certain number of hours per day or week to studying. Then stick with it! A common study plan is to complete one study session per week.
• Read the 2009 CFA Level I (or II or III) Study Guide, which has a wealth of information and will help you organize your study plans. For Level I candidates, this information also appears in the front of Volume I of the custom curriculum.
• Save the candidate web site and refer to it often: https://www.cfainstitute.org/canservices/. This site will link you to several frequently used candidate services.
• Purchase your curriculum early.
• If you have not yet purchased the calculator you will use for the examination (https://www.cfainstitute.org/cfaprogram/calculatorpolicy.html), it is strongly encouraged to do so. Learn your calculator completely. Valuable time will be wasted if you have to refer to the keystroke instructions during the examination.
• Experts agree that more learning takes place when study is spread out over several sessions. In other words, people generally learn more from six two-hour sessions than from one 12- hour session. Structure your study program so that your time is used effectively.
• When developing your schedule, make sure to leave time for relaxation so that you don’t get overwhelmed.
• Before approaching an assigned reading, review the reading-specific Learning Outcome Statements (LOS). These learning outcomes indicate what you should be able to accomplish after studying that reading. When you have finished the reading, close the book and
determine whether you can accomplish the action specified by the LOS.
• LOS are written to help focus your study; they are not intended to signal that candidates should only read the specific paragraphs supporting that LOS. Think of some good books you have read. Would you have attained the same level of understanding from a summary? Although summaries can be useful in reviews, we urge you not to consider summaries as substitutes for the source materials.
• Create your own notes, flaashcards, and practice questions. The time spent writing concepts on paper or into your computer will help you remember them.
• Don’t try to guess what topics or areas will be tested—you may guess wrong. If something is covered in a LOS, it may very well be on the examination.
• Pay attention to the specific command words. In the LOS, command words indicate the depth of understanding required. Command words are defined in the Study Guides and in the Level I custom curriculum.
• In the ethics section for all three levels of the CFA examination, candidates are not required to know the number associated with a particular Standard.
• Each exam question is linked to one or more LOS. The language, terminology, and symbols used in the questions are consistent with the LOS and the candidate readings.
• The examination is faithful to the CFA Institute assigned curriculum. Questions are carefully reviewed to guarantee adherence to the curriculum, and further reviewed to make sure theexaminations are free from biases related to language, business practices, and cultural issues.
• If possible, spend the final three weeks to a month before the examination reviewing the assigned readings and your notes and answering sample questions (the online sample examinations will be helpful). This gives you time to go back and review your weaker areas.
• CFA Institute has developed online sample examinations for the multiple-choice exams at Level I and the item set exams at Level II and Level III.
o The sample examinations were developed in response to candidate demand, and theircontent, format, and style are reflective of the upcoming live examinations. They aretimed, and provide immediate feedback on the correct answer and its explanation, page references in the assigned curriculum, and the LOS reference. The online sampleexaminations are available at: https://www.cfainstitute.org/cfaprogram/onlinesampleexams.html.
o CFA Institute publishes Level III structured response (essay) questions and answers from the past three examinations as Book 5 of the Level III curriculum readings.
• There are two popular strategies for taking the examination. One strategy is to take the examination questions in order, beginning with question 1 and going straight through to the end. The second strategy is to begin the examination with the topic area where you feel most confident in your knowledge. This can help you build confidence, which is an important factor on any examination. In addition, you can generally answer the questions in your area of expertise more quickly, giving you more time in the areas where you have less proficiency.
• You are strongly advised to record your answers on the answer sheet as you take theexamination rather than wait until the end of the examination session. Some candidates mark their answers in the question book and wait until the end of the examination to fill out the computer scan sheet. If time is called before you have transferred your answers, you will not be given additional time.
• Your total score on the examination is the number of questions answered correctly. No deduction is taken for incorrect responses and you will not be penalized for guessing. You should attempt to answer all questions.
• If you finish early, go back and review your work. Many candidates skip questions with the intention of answering them later, and then forget that questions were left unanswered.
• Don’t discuss specifics of the morning session of the examination with other candidates over the lunch break. Too often, candidates’ confidence is shattered after discussing the examination with other candidates, which can lead to poor performance on the afternoon session of the examination.
• Remain calm and confident. When you have prepared well, you should be able to use logic to deduce many of the answers. Don’t be upset if there are several questions you cannot immediately answer.
• Think carefully about your own background and strengths and weaknesses. Then consider devoting special attention to the areas of the curriculum where you are not up-to-date (to build up your general knowledge) and taking the online sample examinations (for good test-taking practice).
• Even if you have not had a chance to fully prepare, consider taking the examination anyway. (1) You will be more “testwise,” knowing more about the skills and abilities it tests for the next year’s exam. (2) Taking the examination may give you more motivation and background as you study for next year’s exam.
• Before the examination:
o Visit the test center a week before the examination to get an idea of traffic, parking, public transportation (if available), and how long it will take to get to the center onthe day of the examination.
o Get a good night’s sleep so that you arrive at the test center well rested. Don’t attemptto do too much last minute studying on the night before. Success or failure on theexamination is determined by what you have done over the past few months—not
what you do on the night before the examination.
o Arrive at the test center early so that you don’t add to your stress level by wondering if you will make it to the test center on time.
2. Tips for Taking the Level I Multiple-Choice Examinations
The 2009 Level I examinations will include 240 total multiple-choice questions, 120 on themorning session of the examination and 120 on the afternoon session. Each multiple-choicequestion is free-standing (not dependent on other questions) and has four possible answers: A, B,C, and D. All questions are equally weighted and there is no penalty for guessing. These are some ideas that may help you while you are taking the Level I multiple choice examination.
• Carefully manage your time. Don’t spend too much time on any one question or topic area. On average, you should allocate 1.5 minutes to each multiple choice question, including timeto record your answer on the answer sheet.
• Read the questions carefully. A careless “skimming” of the question may lead you to a completely different, and incorrect, answer.
• Read each item carefully and eliminate obviously incorrect answers. If you have to guess and you can eliminate one or two of the responses, your odds of answering the question correctly are much higher. There is no penalty for guessing.
• No individual has ever received a perfect score on any level of the CFA examination; there will be some questions on the examination that you will not be able to answer correctly. This is not by design. There is a great deal of material to master, and examination questions are challenging. A score of 70% is very good on the CFA examination. This means that on Level I, for instance, you can miss 72 (out of 240) questions and still earn 70% of the points.
• Examination writers use a standard set of formatting conventions on the selected response questions (multiple choice items on Level I and item set items on Levels II and III). Many sample exams produced by third parties do not follow these conventions, so you should review the CFA Institute format presented here:
Formatting Conventions Used for 2009 Level I Examinations
Item Construction:
Each item on the Level I multiple choice and Levels II and III item sets consists of a stem (question, statement, and/or table) and four distracters, A, B, C, and D. There are three basicformats used:
1. Stems using sentence completion with four unique distracters
2. Stems phrased as questions with four unique distracters
3. Stems using sentence completion or stems phrased as questions with pairs of distracters
arranged in two columns
The first two formats are routinely used for multiple choice items regardless of the nature of the
examination:
Example 1 (Stem using sentence completion)
An analyst suspects that a particular company’s U.S. GAAP financial statements may require adjustment because the company uses take-or-pay contracts. The most likely effect of the appropriate adjustments would be to increase that company’s
A. return on assets.
B. debt-to-equity ratio.
C. interest coverage ratio.
D. return on common equity.
Example 2 (Stem phrased as question)
An analyst suspects that a particular company’s U.S. GAAP financial statements may require adjustment because the company uses take-or-pay contracts. Which of the following is most likely to increase as a result of the appropriate adjustments being made to that company’s
financial statements?
A. Return on assets.
B. Debt-to-equity ratio.
C. Interest coverage ratio.
D. Return on common equity.
The third basic format is used extensively on the CFA examination and has several variations.
Alternative versions of the two-column distracter format are illustrated below:
Example 3(a)
An analyst suspects that a particular company’s U.S. GAAP financial statements may require adjustment because the company uses take-or-pay contracts. The most likely effect of the appropriate adjustments on the company’s return on assets (ROA) and debt-to-equity ratio, respectively, would be
ROA Debt-to-equity ratio
A. Increase Increase
B. Increase Decrease
C. Decrease Increase
D. Decrease Decrease
Example 3(b)
An analyst suspects that a particular company’s U.S. GAAP financial statements may require adjustment because the company uses take-or-pay contracts. What is the most likely effect of the appropriate adjustments on the company’s return on assets? debt-to-equity ratio?
A. Increase Increase
B. Increase Decrease
C. Decrease Increase
D. Decrease Decrease
Example 3(c)
An analyst suspects that a particular company’s U.S. GAAP financial statements may require adjustment because the company uses take-or-pay contracts. Will the appropriate adjustments most likely increase the company’s return on assets? debt-to-equity ratio?
A. No No
B. No Yes
C. Yes No
D. Yes Yes
Item Stems:
The Level I CFA examination does not use EXCEPT, TRUE, or FALSE in item stems and avoids the use of NOT in item stems whenever possible. When appropriate, stems will include one of the following qualifiers: most likely, least likely, best described, most appropriate, most accurate, least appropriate, least accurate. Each stem supports only one item on the examination.
Distracters:
The Level I CFA examination does not use any of the following distracters:
all of the above, none of the above, I and II only, II and III only, cannot determine,
cannot calculate, not enough information to determine.
Distracters consisting of words or sentences are typically ordered from shortest to longest; distracters that are quantitative are ordered from the smallest number to largest number. The distracters agree grammatically with the stem; language common to all distracters is placed in the stem.
3. Tips for Taking the Levels II and III Item Set Examinations
The 2009 Level II CFA examination consists of 20 item sets—10 on the morning session of the examination and 10 on the afternoon session. The 2009 Level III examination uses the essay format in the morning, and the item set format, with 10 item sets, in the afternoon.
Item sets are sometimes called “mini-cases.” Each item set on the CFA examination consists of a vignette (or case statement) and six multiple choice items (questions).
The length of a vignette ranges from about 1 page to 2.5 pages. The longer vignettes are those that include several tables of information, such as for a financial statement analysis, statistics, or fixed income item set. The average length of the vignettes on the examination is about 1.5 pages.
The six items in each item set can only be answered based on the information in the vignette. Hence, the items are not free-standing (as in Level I), but are drawn from the vignette. You will need to read the vignette before answering the items, and you will need to refer back to the vignette for information. The six items can be answered independent of each other, but they do require information in the vignette.
On the Level II examination, you will have a total of 120 items (20 vignettes with 6 items each) compared to 240 multiple choice items on the Level I examination. The examination formats (including the essays at Level III) adapt to the changing topic focus and learning focus at each level. The topic focus on Level I is on investment tools, the topic focus on Level II is on asset valuation, and the topic focus on Level III is on portfolio management. The learning focus also changes, from knowledge and comprehension (Level I), to application and analysis (Level II), and to synthesis and evaluation (Level III).
The Level II and III examinations are graded for 360 points, corresponding to the number of minutes on the examination. The 120 Level II items are equally weighted, 3 points each, with no penalty for guessing. At Level III, the morning essay examination is 180 points and the afternoon item set examination is 180 points.
• Read the formatting conventions (above in section 2) that are followed for writing multiplechoice questions at Level I. These same “best practices” are followed for item sets questions at Levels II and III.
• Expect to go slower on the Level II examination than on Level I. You are answering 50% fewer questions, but spending twice as much time thinking about each one (including time for reading and analyzing the vignettes).
• You may mark up your examination book. Circle or underline important information in the vignette and write down your equations or logic. However, only your final answers recorded on the answer sheets are graded.
• If you do not know the answer to a question:
o You might be able to eliminate one or more choices based on what you know about the topic. There is no penalty for guessing.
o Use reasoning and logic. The concepts that you know on one topic often apply toanother topic.
• No one has ever made a perfect score on the CFA examination. A 70% score on the Level II examination means that you got 84 items correct (and 36 incorrect). Study the curriculum, practice your test-taking skills, and be determined to score well on the examination.
4. Tips for Taking the Level III Essay Examinations
The 2009 Level III essay examination is given in the morning session, and has a maximum score of 180 points. The essay examination typically has 12–15 questions, and questions may have multiple parts. The points for each question and each question part are given in the examination. Copies of the past several years’ essay examinations and guideline answers are available online at https://www.cfainstitute.org/canservices/practiceexams/ and Book 5 of the candidate readings.
The following are some general tips for Level III candidates on the essay examination:
• The published guideline answers on past essay examinations are more complete and betterwritten than actual examination answers that receive full credit.
• Answers are graded only on content. They are not graded for language and style.
• Use short phrases and bullet points to save time, but be sure your meaning is clear.
• Handwriting is rarely so poor that the answer cannot be graded.
• Points are awarded for direct answers to a question.
• No points are awarded for general knowledge that is not responsive to the question.
• Do not spend too much time writing an answer. This is particularly tempting when you know the topic well. Formulate a direct response to the command words, and use the amount oftime allotted.
• The following are common reasons that graders give for poor candidate performance on theessay portion of Level III:
o Not responsive to command word (list, define, etc.).
o Answered a question they wish had been asked instead of the question that was asked.
o No work shown on a calculation question and the answer is incorrect.
o Hedging on questions that ask for a recommendation and justification (recommended A, but justified B).
o Neglected to answer part of the question (especially if a several part question. You can still answer part E, even if you do not know the answer to part D).
o Content area experts spend too much time on their area of expertise, leaving too little time for weak areas.
5. Myths about the CFA Examinations
You may have heard several of the “myths” about the CFA examination, which are given here:
• Myth: “The item sets are less rigorous than the essays.”
The feedback from many Level III candidates is that the item sets were more difficult. In reality, comparing the difficulty of item sets and essays is problematic because they cover different topic areas of the curriculum. In June 2005, the average scores on the essays and item sets were identical.
• Myth: “New readings are not tested in the CFA exam during the first year they are in the curriculum. They will be tested in the second year, and you should skip new readings in your studying.”
This is absolutely not true! New readings are as likely to be tested the year they are first added to the curriculum as existing readings.
• Myth: “CFA Institute sets a low passing rate so that it can make the most money.”
The Board of Governors sets the minimum passing score for the “just qualified candidate,” a score for someone judged to be just qualified to become a practicing investment professional. Candidates are judged against the knowledge, skills, and abilities expected in the profession, not CFA Institute finances. The passing rate is the percentage of candidates whose score is equal to or above the minimum passing score.
• Myths: “If you don’t know the answer, pick C.” “If you don’t know the answer, never pick the longest answer.” “Never pick the shortest answer.” “Never pick an answer that includes words like ‘never’ or ‘always.’”
Don’t waste your time with these games. There are several well-known behavioral idiosyncrasies of examination writers and examination takers. The CFA examination writers are well educated on these and they are written out of the examination. Tricks will not help you pass the examination. Just give your honest, best answer to every question.
• Myth: “CFA Institute writes the examination questions based on what is, or is not, in the notes prepared by review course providers.”
The examination development process begins long before any review course has published its notes. Question writers begin drafting examination questions several months before any review course materials are published. At no time during the development process do question writers or CFA Institute staff consult review course materials.
• Myth: “There is the right way, the wrong way, and the CFA way.”
Although this is a cute saying, it not helpful. The assigned curriculum is academically and professionally sound. (We receive emails from candidates on any instance where the curriculum is not tight.) The examination is designed to be sound, also. The “correct
answer” and the “CFA answer” should be the same.
• Myth: “The key to passing the exam is to get the most points on Financial Statement Analysis. You should skip Derivatives because everyone misses those anyway.”
This is bad advice. Statistical analysis of examination results shows that all topics are contributing proportionately to success on the examination. If you decide to skip some ofthe study sessions, you may be making a mistake. Studying twice as hard on your favorite
topics and skipping your least-favorite topics will probably lower your total score. Try to study all topic areas assigned for the examination.
6. A Final Word
Over the years, the reputation of the CFA Program has been built by the thousands of charterholders involved in developing the curriculum and in writing and grading the examinations. The reputation of the CFA charter has also been built by the ethical and professional conduct of our members in their professional and personal lives. This reputation continues, and there are hundreds of charterholders involved in developing the 2009 curriculum and examinations.
The CFA curriculum and the Candidate Body of Knowledge represent the knowledge that a broad group of global investment professionals has identified as critical to the success of a person entering this profession. The CFA examinations are designed to measure a candidate’s degree of mastery of the CFA curriculum. Examinations are developed to be faithful to the curriculum, fair to candidates, and valuable to members, employers, and investors.
Put in the recommended amount of study time and hone your test-taking skills for exam day. Good luck. We hope that the process of studying for the examination is valuable to you, and that you are successful in earning your CFA charter.
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