On your demand here I am providing CFA Level 2 Sample Questions

Question 1

The Standards of Professional Conduct explicitly outlines responsibilities to four groups. Which of the following is NOT a group mentioned in that list?A) The Federal Reserve.
B) The investing public.
C) The profession.

Question 2


An analyst has a large personal holding of a security, and he has just determined that market conditions warrant selling this security. The analyst contacts clients who have a position in the security and advises them to sell some or all of the security. After waiting 24 hours, he sells the security from his personal accounts. This is:A) a violation of Standard VI(B), Priority of Transactions.
B) congruent with Standard VI(B), Priority of Transactions.
C) a violation of Standard III(B), Fair Dealing.

Question 3

According to the Code of Ethics, when practicing in a professional and ethical manner the goal is to:A) increase membership in CFA Institute.
B) reflect credit on members and the profession.
C) resolve conflicts between clients and employers.

Question 4


A CFO who is a CFA Institute member is careful to make his press releases—some of them containing material and previously undisclosed information—clear and understandable to his readers. While writing a new release, he often has his current intern proofread rough drafts. He also sends electronic copies to his brother, an English teacher, to get suggestions concerning style and grammar. With respect to Standard II(A), Material Nonpublic Information, the CFO is:A) not in violation of the Standard.
B) only in violation by e-mailing the pre-release version to his brother but not the intern, because the intern is in essence an employee of the firm.
C) violating the standard by either showing the pre-release version to his intern or sending it to his brother.

Question 5

The basic rationale for switching from the Prudent Man Rule (PMR) to the Prudent Investor Rule (PIR) is that the PMR:A) views the decision to invest in each asset in isolation, while the PIR recognizes the major tenets of modern portfolio theory and views the decision to invest in a given asset relative to its impact on the portfolio as a whole.
B) was permitting fiduciaries to take risks that were deemed unacceptable when reviewed in court.
C) is process-oriented while the PIR is a results-oriented framework.

Question 6 –


Patricia Spraetz is the chief financial officer and compliance officer at Super Selection Investment Advisors. Super Selection is a medium-sized money management firm which has incorporated the CFA Institute Code of Ethics and Standards of Practice into the firm’s compliance manual.

Karen Jackson is a portfolio manager for Super Selection. She is not a CFA charterholder. Jackson is friendly with David James, president of AMD, a rapidly growing biotech company. James has provided Jackson with recommendations in the biotech industry, which she buys for her own portfolio before buying them for her clients. for three years, Jackson has also served on AMD’s board of directors but has never notified Super Selection of this fact. She has received options and fees as compensation.

Recently, the board of AMD decided to raise capital by voting to issue shares to the public. This was attractive to board members (including Jackson) who wanted to exercise their stock options and sell their shares to get cash. When the demand for initial public offerings (IPO) diminished, just before AMD’s public offering, James asked Jackson to commit to a large purchase of the offering for her portfolios. Jackson had previously determined that AMD was a questionable investment but agreed to reconsider at James’ request. Her reevaluation confirmed the stock to be overpriced, but she nevertheless decided to purchase AMD for her clients’ portfolios.

Which of the following statements is FALSE?A) Jackson violated Standard IV(B) regarding Disclosure of Additional Compensation by not disclosing additional compensation in the form of cash and stock options received from AMD, as its board member to her employer.
B) Jackson did not violate Standard III(A) on Fiduciary Duty to clients because she was bound by her fiduciary duty to AMD and its stockholders as a board member. Therefore, when she reversed her decision to buy AMD shares for Super Selection’s clients, portfolios on James’ request, her obligation to AMD took precedence.
C) Jackson violated Standard VI(A) regarding Conflicts of interest by not disclosing her board membership and ownership of stock options to her employer.

Question 7

When comparing the fiduciary responsibility under the Prudent Investor Rule (PIR) with that under the Prudent Man Rule (PMR), which of the following is TRUE? The PIR does:A) permit the delegation of investment responsibility to third parties; the PMR does permit the delegation of investment responsibility to third parties.
B) not permit the delegation of investment responsibility to third parties; the PMR does permit the delegation of investment responsibility to third parties.
C) permit the delegation of investment responsibility to third parties; the PMR does not permit the delegation of investment responsibility to third parties.

Question 8


A dependent variable is regressed against three independent variables across 25 observations. The regression sum of squares is 119.25, and the total sum of squares is 294.45. The following are the estimated coefficient values and standard errors of the coefficients.Coefficient Value Standard error
1 2.43 1.4200
2 3.21 1.5500
3 0.18 0.0818


What is the p-value for the test of the hypothesis that all three of the coefficients are equal to zero?A) Between 0.025 and 0.05.
B) lower than 0.025.
C) Between 0.05 and 0.10.

Question 9 –

David Black wants to test whether the estimated beta in a market model is equal to one. He collected a sample of 60 monthly returns on a stock and estimated the regression of the stock’s returns against those of the market. The estimated beta was 1.1, and the standard error of the coefficient is equal to 0.4. What should Black conclude regarding the beta if he uses a 5% level of significance? The null hypothesis that beta is:A) equal to one is rejected.
B) equal to one cannot be rejected.
C) not equal to one cannot be rejected.

Question 10 –


The table below shows the autocorrelations of the lagged residuals for the first differences of the natural logarithm of quarterly motorcycle sales that were fit to the AR(1) model: (ln salest − ln salest − 1) = b0 + b1(ln salest − 1 − ln salest − 2) + εt. The critical t-statistic at 5% significance is 2.0, which means that there is significant autocorrelation for the lag-4 residual, indicating the presence of seasonality. Assuming the time series is covariance stationary, which of the following models is most likely to correct for this apparent seasonality?Lagged Autocorrelations of First Differences in the Log of Motorcycle Sales
Lag Autocorrelation Standard Error t-Statistic
1 −0.0738 0.1667 −0.44271
2 −0.1047 0.1667 −0.62807
3 −0.0252 0.1667 −0.15117
4 0.5528 0.1667 3.31614
A) ln salest = b0 + b1(ln salest − 1) − b2(ln salest − 4) + εt.
B) (ln salest − ln salest − 4) = b0 + b1(ln salest − 1 − ln salest − 2) + εt.
C) (ln salest − ln salest − 1) = b0 + b1(ln salest − 1 − ln salest − 2) + b2(ln salest − 4 − ln salest − 5) + εt.


Question 11 –

Which term is least likely to apply to a regression model?A) Goodness of fit.
B) Coefficient of variation.
C) Coefficient of determination.

Question 12


A time series that has a unit root can be transformed into a time series without a unit root through:A) calculating moving average of the residuals.
B) mean reversion.
C) first differencing.

Question 13

An analyst is estimating whether company sales is related to three economic variables. The regression exhibits conditional heteroskedasticity, serial correlation, and multicollinearity. The analyst uses Hansen’s procedure to adjust for the standard errors. Which of the following is most accurate? The:A) regression will still exhibit multicollinearity, but the heteroskedasticity and serial correlation problems will be solved.
B) regression will still exhibit heteroskedasticity and multicollinearity, but the serial correlation problem will be solved.
C) regression will still exhibit serial correlation and multicollinearity, but the heteroskedasticity problem will be solved.

Question 14


A dependent variable is regressed against a single independent variable across 100 observations. The mean squared error is 2.807, and the mean regression sum of squares is 117.9. What is the correlation coefficient between the two variables?A) 0.55.
B) 0.30.
C) 0.99.

Question 15

Amelia Andrews, CFA, is the current head of the California Utilities Commission, the agency which has regulatory authority over all utilities providers in the state of California. Andrews has been head of the agency for three years, before which she had spent her twenty year career in various roles at California Electric (CE), the largest producer and distributor of electricity to residential customers in California. Presently, legislators in the state of California are struggling with the issue of how to balance rising consumer demand for electricity with an obsolete production infrastructure that is already producing at levels approaching full capacity. Andrews has scheduled a joint meeting at the Commission’s office with state legislators, consumer representatives, and utilities providers to address the issues.

At the meeting, Andrews greets several of her former co-workers, who are still employed by California Electric. The Chief Executive Officer of CE is Andrews’s former boss and mentor, as well as occasional golf partner. The CEO of CE is at the meeting to acknowledge consumer concerns about rising electricity prices, but also to explain that CE cannot make any price concession because their existing plants are nearly at full production capacity and new, more efficient plants are several years away from completion. CE’s proposal is to maintain the current strategy of passing on gradual price increases to consumers, which will then level off in the next few years as new plants are brought into production. This would allow CE to maintain its current profits margins while still providing excellent service to its customers.

Andrews introduces herself to the representatives of the consumer interest group, which has recently formed in response to the rise in utilities rates. The consumer interest group is represented by three concerned citizens from different cities across the state who volunteered to attend the meeting to voice the opinions of the consumers they represent. Their main goal is to put pressure on the regulatory commission to hold electricity rates constant until the end of the next year, stating that electricity providers have experienced years of profitability and now should be willing to make concessions to the consumers. Also, the representatives will inform meeting participants if consumer demands are not met, consumers are willing to switch to other “alternative” sources of power, even if that means a decrease in the quality of service or a slight increase in price.

Andrews also welcomes to the meeting several California state legislators who are in attendance. One of them, Louis Briggs, has known Andrews professionally for many years and is the person who had originally proposed Andrews for the job as head of the California Utilities Commission. Briggs had sent a note to Andrews before the meeting to say that he would like to help facilitate a smooth negotiation process at the meeting in anticipation of upcoming state-wide elections. He expresses to Andrews that no solution will be attractive to all interested parties, and that each of them should be willing to give up some ground.

After participating in a preliminary discussion among the representatives of the three interested parties and listening to each of their concerns, Andrews proposes yet another possible course of action: deregulation. Andrews argues that some degree of deregulation for the utilities industry in California could have many advantages over the current system. She requests that further discussions regarding the pros and cons of her proposal be held.

Part 1)
In an industry in which a natural monopoly may exist, such as the electric utilities industry, regulators generally attempt to set industry prices at a level where:A) each participant earns a competitive return on investment.
B) price equals long-run average cost.
C) participants cannot engage in predatory pricing practices.


Part 2)
In general, regulators of a specific industry are held accountable by three separate interested parties, which least likely includes which of the following groups?A) lobbyists and special interest groups.
B) legislators.
C) customers of the industry.


Part 3)
The theory that assumes that despite the original purpose behind its establishment, a regulatory agency will be influenced or even possibly controlled by members of the industry that is being regulated is called the:A) capture hypothesis.
B) share-the-gains, share-the-pains theory.
C) feedback effect.


Part 4)
California Electric’s proposed plan to maintain the current program of passing on gradual price increases to consumers can best be described as:A) rate-of-return regulation.
B) natural monopoly regulation.
C) cost-of-service regulation.


Part 5)
If consumers change their electricity consumption in response to the California Utilities Commission’s proposal to increase the rates providers are permitted to charge, it can best be described as a:A) creative response.
B) feedback effect.
C) positive effect of deregulation.


Part 6)
According to the theory of contestable markets, Andrews’ proposal of deregulation of the industry should produce which of the following outcomes?A) An increase in market efficiency due to lower barriers to entry and exit.
B) A short-term increase in the level of quality of service because of increased competition.
C) Unemployment rates will fall as new job openings are created in the industry.



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