Work through sample Level 2 item sets from our bank: shared vignettes with linked multiple-choice questions and short explanations. These are original study questions from this site, not official CFA Institute exam items. Answer without notes, then open each answer. When you want a full timed sitting, free Level 2 Mock Exam 1 needs no account.
Each block shares one vignette. Choose A, B or C, then open “Show answer”. Samples come from paid Mock 3 only — they are not in free Mock 1.
Ethical and Professional Standards
Priya Nair, CFA, is chief compliance officer at Keystone Advisors, a fictional discretionary equity manager. Keystone’s proxy policy states that votes must be cast solely in clients’ economic interests and that material conflicts are escalated to the compliance committee.
Facts this quarter:
• Keystone’s CEO sits on the board of Vellum Packaging (VEL), a firm held in many client accounts. VEL’s management proposes a stock-option plan that would dilute shareholders by 8%. Proxy advisory firm Glassline recommends against the plan. The CEO asks portfolio managers to “support management as a courtesy.”
• Broker Arcadia Markets provides free sell-side research and pays for Keystone’s annual client conference in exchange for directing 35% of equity commissions to Arcadia. Arcadia’s average execution cost ranks in the bottom quartile versus peers; another broker offers lower costs and comparable research without conference funding.
• Analyst Diego Ruiz, CFA, publishes a “Buy” on Cloudspan Networks after attending a non-deal roadshow. His report cites “proprietary channel checks” that were actually summaries of two sell-side notes he did not attribute. Ruiz owns 2,000 Cloudspan shares purchased before coverage initiation; the ownership is disclosed in the report footer.
• Marketing circulated a one-page “Best Execution Scorecard” claiming Arcadia ranks “top-tier” based solely on research volume—not execution quality. Nair treats the scorecard as a red herring for the soft-dollar review; best execution is judged on total trading costs and research that aids investment decisions.
Nair must brief the board on Standards and soft-dollar obligations.
Question 1 — Ethical and Professional Standards
Voting in favor of VEL’s option plan solely because the CEO requested a courtesy vote most likely:
Is consistent with Standards if the plan is approved by VEL’s compensation committee
Violates the duty to vote proxies in clients’ best economic interests and to manage conflicts
Is required under loyalty to employer when the CEO sits on the issuer’s board
Show answer for question 1
Answer: B
B is correct. Proxy votes must serve clients’ economic interests; deferring to an internal conflict (CEO courtesy) without independent analysis breaches duties of loyalty/care and conflict management. A is incorrect: VEL’s internal approval does not relieve Keystone of its duty to clients. C is incorrect: loyalty to employer does not require subordinating client interests to a CEO’s board relationship.
Question 2 — Ethical and Professional Standards
Directing commissions to Arcadia primarily to fund the client conference, despite inferior execution, most likely:
Violates the obligation to seek best execution and to use client brokerage for investment decision-making benefits
Is always permitted because client conferences are educational soft-dollar benefits
Is acceptable if Arcadia’s research is used by marketing staff only
Show answer for question 2
Answer: A
A is correct. Soft dollars must assist investment decisions and must not override best execution. Conference funding that mainly markets the firm, paired with poor execution, is inconsistent with Standards. B is incorrect: conferences are not automatically permissible soft-dollar uses, especially when they primarily market the adviser. C is incorrect: research used only by marketing does not benefit investment decision-making for clients. The marketing “top-tier” scorecard is irrelevant to true best execution.
Financial Statement Analysis
Willow Devices plc (WDP) reports under IFRS. On 1 January Year 1, WDP acquired 30% of voting shares of Pulse Optics for €45 million cash and can exercise significant influence. Pulse’s book value of net assets was €120 million; fair value of identifiable net assets was €140 million. The €20 million excess of fair value over book value relates entirely to depreciable equipment with a remaining 8-year life (straight-line, zero salvage). Pulse’s Year 1 net income was €16 million; dividends paid were €4 million. WDP uses the equity method.
In an alternative scenario, WDP acquires 75% of Pulse on 1 January Year 1 for €130 million cash. Fair value of identifiable net assets remains €140 million; fair value of the 25% NCI is €42 million. WDP would consolidate Pulse using the full-goodwill approach.
IR separately hyped a “non-binding MOU” with a distributor that has no accounting impact in Year 1—a red herring for the equity-method and goodwill calculations.
Question 3 — Financial Statement Analysis
Under the equity method, WDP’s Year 1 income from Pulse (€ millions) is closest to:
4.05
4.80
5.55
Show answer for question 3
Answer: A
A is correct. Share of NI = 0.30 × 16 = 4.80. Excess FV over BV allocated to equipment = 0.30 × 20 = 6; amortization = 6/8 = 0.75. Equity income = 4.80 − 0.75 = 4.05. B omits amortization. C adds rather than subtracts the amortization. The MOU is irrelevant. The other choices are incorrect distractors that use the wrong inputs or reverse the conclusion.
Question 4 — Financial Statement Analysis
In the 75% consolidation scenario, goodwill on the acquisition date (€ millions) is closest to:
25
32
42
Show answer for question 4
Answer: B
B is correct. Full goodwill: consideration 130 + NCI FV 42 = 172; identifiable net assets FV 140; goodwill = 172 − 140 = 32. A computes partial/purchased goodwill only. C mistakes the NCI fair value for goodwill. The other choices are incorrect distractors that use the wrong inputs or reverse the conclusion.
Fixed Income
Beacon Bank values a fictional 3-year, 5% annual-pay Treasury par-linked note with face 100 using the following spot rates (BEY, annual compounding for this case):
| Maturity | Spot rate |
| 1 year | 3.00% |
| 2 years | 3.50% |
| 3 years | 4.00% |
A second bond is a 2-year, 6% annual-pay corporate. Beacon’s credit analyst adds a parallel 80 bp Z-spread to each spot when discounting the corporate. Modified duration of a 3-year 5% annual bond priced near par is estimated at 2.75; convexity (annual) is 9.0. Beacon forecasts an immediate parallel yield decline of 50 bp.
A desk rumor that “payrolls missed by 200k” is not an input to the spot-curve or duration math—a red herring for the items below.
Question 5 — Fixed Income
The no-arbitrage price of the 3-year 5% government note per 100 par is closest to:
104.20
102.87
105.66
Show answer for question 5
Answer: B
B is correct. Discount each cash flow at its matching spot rate: 5/1.03 + 5/1.035² + 105/1.04³ ≈ 102.87. A uses the 2y spot as a flat rate; C uses the 1y spot throughout. The payrolls rumor is irrelevant.
Question 6 — Fixed Income
The 2-year 6% corporate price using spots + 80 bp Z-spread is closest to:
101.7
103.2
104.8
Show answer for question 6
Answer: B
B is correct. Add 80 bp to each spot: 6/1.038 + 106/1.043² ≈ 103.22, or 103.2. A double-counts the spread; C omits it. The other choices use the wrong discount rates.
Level 2 practice questions on this page are short item-set drills: one vignette, a few linked MCQs, and an explanation you can open after you choose. Use them to rehearse reading tables, footnotes and constraints once, then applying the same facts across several stems. Untimed drills help when you are learning a valuation method or an Ethics conflict; speed comes after the method is clear.
A full Level 2 Mock Exam is different. Each of our forms has 23 item sets and 92 questions in 138 minutes at 2026 topic weights across all ten Level 2 topics. That sitting trains stamina, vignette pacing and switching topics under the clock. A high score on a familiar Ethics set does not show whether you can finish 92 questions on time.
Alternate the two approaches. Drill a weak topic with samples, repair the gap, then test the improvement in a mixed timed Mock Exam. Free Mock Exam 1 on Level 2 needs no account and returns an instant score. Browse the Level 2 mock exam hub for session options and read how Level 2 mocks work for format and strategy.
How Level 2 item sets are structured
Each item set opens with a vignette — often a short case with exhibits — then four multiple-choice questions that reuse those facts. Wrong answers often reuse a number from the vignette in the wrong formula, skip an amortization step, or reverse a Standards conclusion.
On exam day and in our Mock Exams you cannot flip back to change answers after you leave a set in the same way you might in an untimed drill, so train yourself to extract the decision-relevant facts before you open the first stem. Flag uncertainty, move on, and return only if time remains.
When to start Level 2 timed practice
A first timed Mock Exam early in preparation can show you the item-set format and give you a baseline. Treat that score as a starting point, not a verdict.
The most useful sittings come once you have covered most of the curriculum, when a mixed form exposes gaps across Ethics, FSA, Equity, Fixed Income and the rest of the Level 2 outline. Leave time between Mock Exams to review every miss and uncertain answer.
How to review an item-set sitting
Record each miss with its topic and the vignette fact you misread or ignored.
Note why it happened: concept gap, exhibit misread, calculation slip or running out of time.
Write the rule or formula you should have used, then retry the stem without looking at the answer.
Check whether a later question in the same set would have been correct if you had fixed the earlier mistake.
Look for patterns across several sittings before changing your study plan.
What CFA Mock Exam offers for Level 2
Mock 1 is free: a timed 92-question item-set session with an instant score, no account or card needed. Paid Level 2 access unlocks all four timed Mock Exams, explanations, topic breakdown and post-mock analysis. See the Level 2 hub or compare access options.
Our Mock Exams are supplementary practice. A practice score helps you decide what to revise; it does not predict your CFA exam result.
Frequently asked questions
Are these official CFA Level 2 questions?
No. CFA Mock Exam is independent practice software and is not affiliated with CFA Institute. Registered candidates also receive official practice from CFA Institute.
Is there a free CFA Level 2 mock exam?
Yes. Mock 1 is free: a timed 92-question item-set session with an instant score, no account or card needed. Paid access unlocks Mocks 2–4, explanations and analysis.
How many questions are in a Level 2 Mock Exam on this site?
Each form has 23 item sets and 92 multiple-choice questions in 138 minutes, weighted to the 2026 Level 2 topic bands.
How should I use these practice questions?
Answer without notes, explain why the other choices fail, then open the answer. Use misses to pick a topic drill, then confirm improvement in a full timed Mock Exam.
Does a practice score predict my result?
No. A practice score helps you decide what to revise next; it does not predict a CFA exam result.
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