Free CFA® Level 2 Exam Questions and Answers
CFA® Level 2 is one of the Test Prep tests covered here. These are standardised tests from different organisations rather than one programme — the Praxis series for US teacher licensure is awarded by ETS, and admissions and licensure tests alongside it come from other bodies entirely, each with its own format and scoring.
The first 10 questions on this page are free to read, answers included — no account and no card. A plan opens the rest of the bank, the full timed practice test and your weak-topic reporting.
Last updated: August 29, 2026
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Question #1
A portfolio manager is considering investing in a stock with a _ of 1.2. If the market return is 10% and the risk-free rate is 2%, what is the expected return according to CAPM?
Please select an optionIncorrectCorrect answer: A
Expected return = Risk-free rate + _ (Market return - Risk-free rate) = 2% + 1.2 * (10% - 2%) = 10.4%.
Was this answer correct?Question #2
A trader is assessing market efficiency. If stock prices reflect all publicly available information, which form of efficiency is present?
Please select an optionIncorrectCorrect answer: D
Semi-strong form efficiency states that stock prices reflect all publicly available information, thus affecting stock pricing.
Was this answer correct?Question #3
An investment analyst observed that stock A and stock B have a correlation of 0.85. What does this indicate about the relationship between these two stocks?
Please select an optionIncorrectCorrect answer: C
A correlation of 0.85 indicates a strong positive relationship where both stocks tend to move together in the same direction.
Was this answer correct?Question #4
A company's return on equity (ROE) is 15%, and its debt-to-equity ratio is 1. A financial analyst using the DuPont analysis wants to determine the net profit margin. What is it if the asset turnover is 2?
Please select an optionIncorrectCorrect answer: A
ROE = Net profit margin _ Asset turnover _ Equity multiplier. Rearranging gives Net profit margin = ROE / (Asset turnover _ Equity multiplier).
Was this answer correct?Question #5
An investor holds a bond with a 5% coupon rate that matures in 10 years. If the current market interest rate is 6%, what will happen to the bond's price?
Please select an optionIncorrectCorrect answer: D
As market interest rates rise above the coupon rate, the existing bonds with lower rates become less attractive, causing their prices to decrease.
Was this answer correct?Question #6
A firm plans to issue new equity to finance a project that is expected to generate cash flows of $500,000 per year for 5 years. If the cost of equity is 8%, what is the value of the project?
Please select an optionIncorrectCorrect answer: D
Using the present value of annuity formula, the value of the project = Cash Flow _ [(1 - (1 + r)^-t) / r] with r as the cost of equity and t as years of cash flow.
Was this answer correct?Question #7
A financial analyst is assessing two investment opportunities with different risk levels. If investment A has an expected return of 12% with a standard deviation of 10%, while investment B has an expected return of 10% with a standard deviation of 5%, which investment is riskier?
Please select an optionIncorrectCorrect answer: A
Investment A has a higher standard deviation indicating greater risk compared to Investment B; hence it is riskier despite the higher expected return.
Was this answer correct?Question #8
In a stock market, which phenomenon occurs when investors sell stocks on average, causing stock prices to drop?
Please select an optionIncorrectCorrect answer: D
A bear market is characterized by falling stock prices, typically occurring when investors are pessimistic and sell off their holdings en masse.
Was this answer correct?Question #9
During a company restructuring, the CEO announces a 10% cut in workforce. What is the potential impact on the company's operational efficiency?
Please select an optionIncorrectCorrect answer: D
Reducing workforce can lead to improved efficiency in the short term due to lower labor costs but may hinder operations if essential staff are let go.
Was this answer correct?Question #10
When a company issues new shares, it dilutes the earnings of existing shareholders. If the EPS before the new shares was $3 and the new shares increase the total shares by 50%, what will be the new EPS, assuming total earnings remain constant?
Please select an optionIncorrectCorrect answer: C
New EPS = Total earnings / New number of shares. If shares increase by 50%, the new EPS would be $3 / 1.5 = $2.
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FAQ
- Q1: What is the CFA® Level 2 exam?
- A: CFA® Level 2 is a Test Prep certification exam. Judging by the questions in our bank, it concentrates on market, stock, investment, ratio and equity.
- Q2: What topics does the CFA® Level 2 exam cover?
- A: Questions in our CFA® Level 2 bank cluster around market, stock, investment, ratio, equity, firm, return and investor. Working through the full set is the quickest way to find which of these you are weakest on.
- Q3: How should I prepare for CFA® Level 2?
- A: Work through the CFA® Level 2 practice questions here, checking your answer on each one, then sit the practice test to rehearse the exam under timed conditions before the real thing.
- Q4: Are these real CFA® Level 2 exam questions?
- A: They are drawn from officially released past questions and from community members who have sat CFA® Level 2. Answers are verified and updated weekly.
- Q5: Where do I register for the CFA® Level 2 exam?
- A: Register through Test Prep directly. Exampractice is not affiliated with Test Prep and does not administer the exam.
- Q6: Is there a free CFA® Level 2 sample?
- A: Yes. Every CFA® Level 2 page shows a free sample of real questions. Upgrading opens the full bank and the practice test.