CFA Level II Book: Your Bridge to Advanced Analysis

Step Forward Into Deeper Finance Mastery

Having conquered CFA Level I or otherwise feeling ready for the next challenge, you’re now poised to deepen your expertise in areas such as advanced valuation, sophisticated portfolio management techniques, and rigorous financial statement analysis. This comprehensive resource aims to demystify the complex layers of the CFA Level II curriculum while reinforcing a strong practical focus.

What Sets This Book Apart?

1. Deeper Explanations in Plain Language
   Our approach enlarges on Level I by breaking down more complex models and scenarios, ensuring you can follow intricate calculations and advanced theories without getting lost. Flowcharts, case studies, and meticulous numeric examples help reinforce critical concepts.

2. 10 FREE Sample Questions per Page
   The best way to integrate complex topics is practice, practice, and more practice. Each page includes new, exam‐style questions that keep you engaged and test your evolving skill set.

3. Thousands of Quizzes
   Our robust question bank supports each topic with a wide array of scenario‐based and calculation‐intensive questions, reflecting CFA Level II’s more analytical style. Benchmark your progress so you can pinpoint and strengthen weak areas.

4. Open Source & Community‐Driven
   Just like our Level I resource, this book’s source code can be found on GitHub. Contribute your insights, data sets, or additional practice questions. Our collective efforts ensure that we’ve got the most current techniques and examples covered.

Which Topics Are Covered?

We provide thoroughly aligned coverage of the official CFA Level II curriculum, including:

• Quantitative Methods (regression, time‐series, machine learning applications)
• Economics (exchange rate determination, advanced growth theories)
• Financial Statement Analysis (multinational operations, intercorporate investments, pension analysis)
• Corporate Issuers (capital structure, corporate governance, and advanced valuation frameworks)
• Equity Investments (DDM, residual income, free cash flow, and private company valuation)
• Fixed Income (complex bond structures, credit risk, and yield curve modeling)
• Derivatives (forward/futures valuation, options, swaps, and risk management)
• Alternative Investments (hedge funds, private equity, real estate, and commodities)
• Portfolio Management (active vs. passive, multi‐factor models, risk analysis, and performance attribution)
• Ethical and Professional Standards (CFA Institute Code of Ethics, complex scenarios, global regulatory context)

Why Contribute?

• Collaborative Expertise: CFA Level II increasingly demands nuanced judgment. Share your practice scenarios and real‐world data, helping others develop stronger analytical instincts.
• Continuous Improvement: Feedback and pull requests let us fine‐tune the explanations or expand on new and evolving trends in finance.
• Advanced Learning: By exploring and articulating complex topics, you’ll further cement your own understanding and excel on exam day.

Ready to Elevate Your Skills?

1. Dive into Comprehensive Chapters: Each core topic is risk‐focused and vision‐oriented, reflecting Level II’s emphasis on deeper analysis.
2. Test Yourself Constantly: Use the free quizzes to transform passive reading into active mastery—critical for tackling the item‐set questions that define the Level II exam.
3. Engage on GitHub: Whether you propose an edit, share alternative valuation examples, or highlight advanced methods, your collaboration keeps this resource fresh.
4. Embrace the Journey: Level II is your steppingstone to higher‐level mechanics of finance and portfolio management—stay consistent, stay curious, and lean on the community for support.

Let’s Take Your CFA® Knowledge Further

Experience the power of clear instruction, relevant practice, and community collaboration. Whether you’re bridging the gap from Level I or seeking to refine the advanced topics that set Level II apart, this free, open‐source guide is here to support your success.

Get Started Now

Browse through the chapters, tackle the quizzes, and feel your analytical confidence rise. Together, we can master the intricate world of CFA Level II—every step of the way.

Disclaimer:
CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by FinancialAnalystGuide. The CFA® and Chartered Financial Analyst® marks are the property of CFA Institute.

In this section

• Chapter 1: Advanced Quantitative Methods—Multiple Regression, Time-Series, and Machine Learning
  Chapter 1: Advanced Quantitative Methods—Multiple Regression, Time-Series, and Machine Learning explains the core concepts, key definitions, and practical implications you need for solid analysis. It highlights common pitfalls and the intuition behind the methods so the results are interpreted correctly.
  • Multiple Regression Foundations and Applications
    Multiple Regression Foundations and Applications (CFA Level 2): Covers Purpose and Definition and Key Assumptions with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Model Specification, Misspecification, and Extensions
    Model Specification, Misspecification, and Extensions (CFA Level 2): Covers Model Specification and Under-Specification vs. Over-Specification with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Time-Series Analysis and Forecasting Techniques
    Time-Series Analysis and Forecasting Techniques (CFA Level 2): Covers Differences from Cross-Sectional Data and Stationarity and Autocorrelation with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Advanced Topics in Time-Series—Volatility and Seasonality
    Advanced Topics in Time-Series—Volatility and Seasonality (CFA Level 2): Covers Why Volatility Matters and ARCH (Autoregressive Conditional Heteroskedasticity) with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Machine Learning and Big Data in Finance
    Machine Learning and Big Data in Finance (CFA Level 2): Covers Introduction to Machine Learning in Finance and Supervised Learning with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Simulation Methods for Scenario Testing
    Simulation Methods for Scenario Testing (CFA Level 2): Covers Historical Simulation and Example: Portfolio VaR through Historical Simulation with key formulas and practical examples. Includes exam-style practice questions with explanations.
• Chapter 2: Macroeconomic Analysis, Exchange Rates, and Policy Implications
  Chapter 2: Macroeconomic Analysis, Exchange Rates, and Policy Implications explains the core concepts, key definitions, and practical implications you need for solid analysis. It highlights common pitfalls and the intuition behind the methods so the results are interpreted correctly.
  • Economic Growth and Productivity Analysis
    Economic Growth and Productivity Analysis (CFA Level 2): Covers Defining Economic Growth and Its Importance and Practical Impact with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Exchange Rate Determination and Forecasting
    Exchange Rate Determination and Forecasting (CFA Level 2): Covers Spot Rates vs. Forward Rates and The Link Between Interest Rates and Forwards with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • International Parity Conditions and Economic Balances
    International Parity Conditions and Economic Balances (CFA Level 2): Covers Foundations of International Parity Conditions and Covered Interest Rate Parity (CIP) with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Macro Analysis in Sector and Corporate Valuation
    Macro Analysis in Sector and Corporate Valuation (CFA Level 2): Covers Linking Macro Trends to Sector Performance and Impact on Corporate Earnings and Cost of Capital with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Canadian and U.S. Policy Perspectives
    Canadian and U.S. Policy Perspectives (CFA Level 2): Covers Central Banking Frameworks and The Federal Reserve (U.S.) with key formulas and practical examples. Includes exam-style practice questions with explanations.
• Chapter 3: Advanced Financial Statement Analysis and Interpretation
  Chapter 3: Advanced Financial Statement Analysis and Interpretation explains the core concepts, key definitions, and practical implications you need for solid analysis. It highlights common pitfalls and the intuition behind the methods so the results are interpreted correctly.
  • Intercorporate Investments, Mergers & Acquisitions
    Intercorporate Investments, Mergers & Acquisitions (CFA Level 2): Covers Key Considerations for Intercorporate Investments and Quick Snapshot: IFRS vs. US GAAP Classification with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Employee Compensation and Post-Employment Benefits
    Employee Compensation and Post-Employment Benefits (CFA Level 2): Covers Overview of Employee Compensation and Share-Based Compensation with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Multinational Operations and Currency Translation
    Multinational Operations and Currency Translation (CFA Level 2): Covers Local, Functional, and Presentation Currency and Foreign Currency Transaction Exposure with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Evaluating Financial Reporting Quality and Earnings Sustainability
    Evaluating Financial Reporting Quality and Earnings Sustainability (CFA Level 2): Covers Framework for Assessing Financial Reporting Quality and Potential Problems with Financial Reports with key formulas and examples. Includes exam-style practice questions with explanations.
  • Analysis of Financial Institutions
    Analysis of Financial Institutions (CFA Level 2): Covers Unique Features of Financial Institutions and CAMELS Approach to Analyzing Banks with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Comprehensive Integration of Financial Statement Techniques
    Comprehensive Integration of Financial Statement Techniques (CFA Level 2): Covers Adjusting for Accounting Differences and Revenue Recognition Variations with key formulas and practical examples. Includes exam-style practice questions with explanations.
• Chapter 4: Corporate Finance, Governance, and Valuation
  Chapter 4: Corporate Finance, Governance, and Valuation explains the core concepts, key definitions, and practical implications you need for solid analysis. It highlights common pitfalls and the intuition behind the methods so the results are interpreted correctly.
  • Capital Structure and Leverage Analysis
    Capital Structure and Leverage Analysis (CFA Level 2): Covers Capital Structure Theories and Trade-Off Theory with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Corporate Governance, Risk Management, and ESG
    Corporate Governance, Risk Management, and ESG (CFA Level 2): Covers Corporate Governance Fundamentals and Risk Management Approaches with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Valuation of Corporate Issuers
    Valuation of Corporate Issuers (CFA Level 2): Covers Free Cash Flow Valuation and FCFF vs. FCFE with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Dividend Policy and Share Repurchases
    Dividend Policy and Share Repurchases (CFA Level 2): Covers Dividend Policy Theories and Dividend Irrelevance Theory (Miller and Modigliani) with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Advanced Cost of Capital and Corporate Restructuring
    Advanced Cost of Capital and Corporate Restructuring (CFA Level 2): Covers Advanced Cost of Capital Estimation and The Role of WACC with key formulas and practical examples. Includes exam-style practice questions with explanations.
• Chapter 5: Equity Valuation—Models, Applications, and Market Nuances
  Chapter 5: Equity Valuation—Models, Applications, and Market Nuances explains the core concepts, key definitions, and practical implications you need for solid analysis. It highlights common pitfalls and the intuition behind the methods so the results are interpreted correctly.
  • Dividend Discount and Free Cash Flow Models
    Dividend Discount and Free Cash Flow Models (CFA Level 2): Covers Valuation Foundations and Why This Matters with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Residual Income Valuation and Applications
    Residual Income Valuation and Applications (CFA Level 2): Clear explanations, key formulas, and practical examples for CFA Level 2 applications. Includes exam-style practice questions with explanations.
  • Market-Based Valuation and Relative Valuation
    Market-Based Valuation and Relative Valuation (CFA Level 2): Covers Rationale Behind Market-Based Valuation and Method of Comparables: Practical Steps with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Private Company Valuation
    Private Company Valuation (CFA Level 2): Covers Methods and Income-Based Approaches with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Specialized and Advanced Valuation Perspectives
    Specialized and Advanced Valuation Perspectives (CFA Level 2): Covers Valuing Resource-Sector Companies (Energy, Mining) and Commodity Price Forecasts with key formulas and practical examples. Includes exam-style practice questions with explanations.
• Chapter 6: Fixed Income Valuation and Analysis
  Chapter 6: Fixed Income Valuation and Analysis explains the core concepts, key definitions, and practical implications you need for solid analysis. It highlights common pitfalls and the intuition behind the methods so the results are interpreted correctly.
  • Term Structure Analysis and Yield Curve Modeling
    Term Structure Analysis and Yield Curve Modeling (CFA Level 2): Covers Spot Rates, Forward Rates, and Yield to Maturity and Bootstrapping the Zero-Coupon (Spot) Curve with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Credit Analysis and Credit Risk Modeling
    Credit Analysis and Credit Risk Modeling (CFA Level 2): Covers Foundations of Credit Analysis and Probability of Default, Loss Given Default, and Expected Loss with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Valuation of Bonds with Embedded Options
    Valuation of Bonds with Embedded Options (CFA Level 2): Covers Key Embedded Bond Options and Decomposing the Embedded Option Bond with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Credit Default Swaps and Structured Finance
    Credit Default Swaps and Structured Finance (CFA Level 2): Covers Introduction to Credit Default Swaps and Mechanics of a CDS with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Practical Applications in Canadian and U.S. Fixed Income Markets
    Practical Applications in Canadian and U.S. Fixed Income Markets (CFA Level 2): Covers The Role of Benchmark Yield Curves and Liquidity Considerations with key formulas and practical examples. Includes exam-style practice questions with explanations.
• Chapter 7: Derivatives Valuation and Applications
  Chapter 7: Derivatives Valuation and Applications explains the core concepts, key definitions, and practical implications you need for solid analysis. It highlights common pitfalls and the intuition behind the methods so the results are interpreted correctly.
  • Forward and Futures Contract Valuation
    Forward and Futures Contract Valuation (CFA Level 2): Covers Forward and Futures Contracts and Cost-of-Carry Model with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Options Valuation and Strategies
    Options Valuation and Strategies (CFA Level 2): Covers Understanding Calls and Puts and Payoff Diagrams: Visualizing Risk and Return with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Swap Valuation and Applications
    Swap Valuation and Applications (CFA Level 2): Covers Definition and Mechanics of Swaps and Purposes with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Advanced Derivatives Usage and Risk Management
    Advanced Derivatives Usage and Risk Management (CFA Level 2): Covers Volatility Derivatives and Variance Swaps and Variance Swaps Basics with key formulas and practical examples. Includes exam-style practice questions with explanations.
• Chapter 8: Alternative Investment Analysis
  Chapter 8: Alternative Investment Analysis explains the core concepts, key definitions, and practical implications you need for solid analysis. It highlights common pitfalls and the intuition behind the methods so the results are interpreted correctly.
  • Real Estate Valuation and Analysis
    Real Estate Valuation and Analysis (CFA Level 2): Covers Types of Real Estate Investments and Direct Ownership with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Private Equity Valuation and Performance
    Private Equity Valuation and Performance (CFA Level 2): Covers The Private Equity Spectrum and Venture Capital (VC) with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Hedge Fund Strategies and Analysis
    Hedge Fund Strategies and Analysis (CFA Level 2): Covers Hedge Fund Classification by Strategy and Equity-Related Strategies with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Commodities and Other Alternative Investments
    Commodities and Other Alternative Investments (CFA Level 2): Covers Commodities: An Overview and Example: The Farmer’s Dilemma with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Practical Considerations for North American Investors
    Practical Considerations for North American Investors (CFA Level 2): Covers Taxation of Alternative Investments in the U.S. and Canada and U.S. Tax Considerations with key formulas and practical examples. Includes exam-style practice questions with explanations.
• Chapter 9: Portfolio Construction, Risk Measurement, and Performance
  Chapter 9: Portfolio Construction, Risk Measurement, and Performance explains the core concepts, key definitions, and practical implications you need for solid analysis. It highlights common pitfalls and the intuition behind the methods so the results are interpreted correctly.
  • Portfolio Risk and Return Measurement
    Portfolio Risk and Return Measurement (CFA Level 2): Covers Why Risk and Return Matters and Understanding Weighted Average Return with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Active Portfolio Management Strategies
    Active Portfolio Management Strategies (CFA Level 2): Covers Active vs. Passive Management and Introduction to the Information Ratio (IR) with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Performance Evaluation and Attribution
    Performance Evaluation and Attribution (CFA Level 2): Covers Understanding Performance Measurement, Attribution, and Appraisal and The Brinson Model: Allocation vs. Selection with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Risk Management and Asset Allocation
    Risk Management and Asset Allocation (CFA Level 2): Covers Strategic Asset Allocation: The Long-Term Blueprint and Tactical Asset Allocation: Short-Term Tweaks with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Multifactor Models and APT
    Multifactor Models and APT (CFA Level 2): Covers APT as an Alternative to CAPM and The Core Multifactor Equation with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Measuring and Managing Market Risk (VaR and Beyond)
    Measuring and Managing Market Risk (VaR and Beyond) (CFA Level 2): Covers The Concept of Value at Risk (VaR) and Major VaR Approaches with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Backtesting, Simulation, and Strategy Validation
    Backtesting, Simulation, and Strategy Validation (CFA Level 2): Covers Backtesting and Data Integrity and Cleaning with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Exchange-Traded Funds (ETFs) and Practical Applications
    Exchange-Traded Funds (ETFs) and Practical Applications (CFA Level 2): Covers Understanding the Creation/Redemption Mechanism and Role of Authorized Participants in Liquidity and Price Alignment with key formulas and examples. Includes exam-style practice questions with explanations.
• Chapter 10: Ethical Standards, Professional Conduct, and Compliance
  Chapter 10: Ethical Standards, Professional Conduct, and Compliance explains the core concepts, key definitions, and practical implications you need for solid analysis. It highlights common pitfalls and the intuition behind the methods so the results are interpreted correctly.
  • CFA Institute Code of Ethics and Standards of Professional Conduct
    CFA Institute Code of Ethics and Standards of Professional Conduct (CFA Level 2): Covers Overview of the Code and Standards and The Six Core Principles of the CFA Institute Code of Ethics with key formulas and examples. Includes exam-style practice questions with explanations.
  • Application of Ethical Principles in Complex Scenarios
    Application of Ethical Principles in Complex Scenarios (CFA Level 2): Covers The Core of Complex Ethical Scenarios and Insider Trading Concerns with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Enforcement, Regulatory Considerations, and Global Context
    Enforcement, Regulatory Considerations, and Global Context (CFA Level 2): Covers Overview of Enforcement Mechanisms and Regulatory Bodies and Their Roles with key formulas and practical examples. Includes exam-style practice questions with explanations.
• Chapter 11: U.S. and Canadian Regulations, Practices, and Industry Nuances
  Chapter 11: U.S. and Canadian Regulations, Practices, and Industry Nuances explains the core concepts, key definitions, and practical implications you need for solid analysis. It highlights common pitfalls and the intuition behind the methods so the results are interpreted correctly.
  • Securities Regulation in the U.S. and Canada
    Securities Regulation in the U.S. and Canada (CFA Level 2): Covers Introduction to Securities Regulation and Key Regulatory Bodies in the United States with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Differences in Accounting and Disclosure (IFRS, U.S. GAAP, and ASPE)
    Differences in Accounting and Disclosure (IFRS, U.S. GAAP, and ASPE) (CFA Level 2): Covers Foundations of IFRS, U.S. GAAP, and ASPE and Key Areas of Divergence with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Taxation and Cross-Border Implications
    Taxation and Cross-Border Implications (CFA Level 2): Covers Comparing Corporate and Individual Tax Structures and Cross-Border Investments: Withholding Taxes, Tax Treaties, and Estate Taxes with key formulas and examples. Includes exam-style practice questions with explanations.
  • Market Microstructure and Trading Environments
    Market Microstructure and Trading Environments (CFA Level 2): Covers Major U.S. Exchanges: NYSE and NASDAQ and NYSE: The Big Board with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Industry-Specific Valuations in North America
    Industry-Specific Valuations in North America (CFA Level 2): Covers Valuation in the Energy Sector (Oil Sands in Canada, Shale in the U.S.) and Reserve-Based Valuation Models with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Pension Plans, Healthcare, and Other Long-Term Liabilities
    Pension Plans, Healthcare, and Other Long-Term Liabilities (CFA Level 2): Covers Key Regulatory Frameworks in the U.S. and Canada and Corporate and Public Pension Plans with key formulas and practical examples. Includes exam-style practice questions with explanations.
  • Future Trends and Developments in North American Capital Markets
    Future Trends and Developments in North American Capital Markets (CFA Level 2): Covers Harmonization of U.S. and Canadian Securities Registrations and Evolving Data Privacy and Cybersecurity with key formulas and examples. Includes exam-style practice questions with explanations.