Level II vs Level III - A talk with a Charterholder

As always he was kind, comprehensive and very much calculated in each and every word coming out of him. The basic difference he cited in preparing for level II and level III was the portfolio perspective. Level II was much more of a hardcore stuff dealing with mechanics and tools while Level III was kind of managerial in which the everything is considered in relation to the broader picture - The Portfolio. Apart from the other details like old examination questions are available for LIII, the exam does not only comprise of item sets but essay or rather structured response, according to him, was an addition distinct to Level III another major difference is the historic pass rate for LIII. Probably the 70% distinction does not apply here and there is a good chance for students to pass scoring < 70%. Though MPS is never disclosed but generally its an understanding that scoring above 70% is considered to be Pass for Level I & Level II. I can recall while preparing for Level I & II, I used to put myself into the stuff & mostly tried to think from examiner's perspective so that I could cover all the aspects which I potentially find testable. Focusing on Portfolio Perspective and acting like making judgements from the question according to the scenario painted could better help in passing the exam. And I think I must do it from the beginning. Reading 23 is almost done I hope by next week 2 more readings will be covered. Stay tuned!

Lets See what CFA Institute has to say about Level III Essay Questions

My preparations for Level III have 'officially' started from 25th of this month and waow its hard to believe I am preparing for the final level! Last year when I looked at the item sets... they freaked me out ALOT. I hope Essays which are distinct to Level III do not rip me a** apart. Level III essay exam is tested in the morning. Usually 10 - 15 questions are tested in the exam with multiple parts and each question & part's points are given in the exam accumulating to max 180 points. Each essay question consists of one or more parts. Some parts direct the student to write the answer in a template. Instructions in bold print immediately following the question direct the candidate to the page number of each template. 

Source: http://www.cfainstitute.org/cfaprogram/exams/format/Pages/cfa_exam_question_formats.aspx

The Website further shared interesting information

·         The published guideline answers on past essay exams are more complete and better written than actual exam answers that receive full credit.

·         The published guideline answers may not reflect all alternative approaches to the question that received full or partial credit.

·         Answers are graded only on content. They are not graded for language and style. (pretty important and a point certainly I need to focus well)

·         Use short phrases and bullet points to save time, but be sure your meaning is clear. (tough job to remain comprehensive)

·         Handwriting is rarely so poor that the answer cannot be graded. (Whoops! Let me recall when I had solved the last exam with hand??? Probably 2 years!"

·         Points are awarded for direct answers to a question.

·         No points are awarded for general knowledge that is not responsive to the question. (Another area to focus on)

·         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 of time allotted. (Another weak point!)

·         You should expect to encounter questions that you will not be able to answer correctly. There is a great deal of material to master and exam questions are challenging. Standard setters and the Board of Governors (at all three levels) take account of exam difficulty in setting Minimum Passing Scores. 

Source: http://www.cfainstitute.org/cfaprogram/exams/format/Pages/cfa_exam_question_formats.aspx

And Some common reasons why candidates get poor grades!

·         Not responsive to command word list (list, define, etc.)

·         Answered a question they wish they had been asked instead of the question that was asked.

·         No work shown on a calculation question and the answer is incorrect.

·         Hedged on questions that asked for a recommendation and justification (e.g., recommended A, but justified B).

·         Neglected to answer part of the question (especially if a several part question). Note that you can still answer part E, even if you do not know the answer to part D.

·         Content area experts spent too much time on their area of expertise, leaving too little time for weak areas.

·         Providing more items or responses than requested. If a question asks for three factors, only the first three that you list will be graded.

Source: http://www.cfainstitute.org/cfaprogram/exams/format/Pages/cfa_exam_question_formats.aspx

For Further details on Level III Essay questions visit:

http://www.cfainstitute.org/cfaprogram/exams/format/Pages/level_iii_essay_question_details.aspx

The Broader Picture vs Details

Throughout my preparation for Level II, I was of the impression that it is totally different than Level I in terms of understanding, depth and testing. After going through the exam I realized LII is different in terms of understanding and depth but in a lot of areas I had found the testing to be more or less on the same path. I don't know how true I am in exclaiming this but this is exactly my impression. Understanding the broader picture is undoubtedly necessary but it is also deceiving in terms of exams point of view. For instance I spent a lot of time in understanding and solving fairly detailed examples forgetting that an MCQ has three options and we have around 3 minutes to solve it. Steps which are involved in broader applications need to be understand fairly and can be tested in the exam. Like in translating the whole Financial Statements in Multi National Operations using Temporal or All current method several steps were involved. Considering the examples provided in the chapter I went through the whole process but lately I realized that the whole situation is less likely to be tested as compared to individual steps like how to translate revenues, COGS etc. or how using one method is different that other in terms of ratio analysis and so on. Trying to grasp the whole topic may lead one, as what happened with me initially, not to remember and recall individual steps which have the potential to be tested. I am not stating to let go off the broader picture and cram the steps but understanding as well as making ourselves comfortable with details is important. Thanks to curriculum notes I used, had separated the details and highlighted them in boxes which could be digested easily. Precisely talking about the exam it is very important to stay focused on details and steps which could be tested along with proper understanding of the topics particularly in all major areas.

The Schedule I followed for Level II

For Level II I had followed the schedule provided by FinQuiz. By last year they were offering for free.. I think the offer still resides, one can get it in response to a one liner email at info@finquiz.com

Mergers & Acquisitions - Some definitions

• Acquisitions: purchase of some portion of one company.
• Merger: absorption of one company by other.
• Statuary merger: acquirer acquires all target’s assets.
• Subsidiary merger: target becomes subsidiary after purchase.
• Consolidation: both cease to exist to become a new company.
• Target Company: one being acquired.
• Acquiring company: company acquiring target.
• Hostile transaction: potential business combinations without management & board’s consent.
• Friendly transaction: business combinations approved by management of both companies.
• Horizontal merger: merging companies in same kind of business.
• Vertical merger: companies at different position in same value chain.
• Backward integration: acquirer purchases target ahead of it in value chain.
• Forward integration: acquirer purchases target further down the value chain.
• Conglomerate merger: Acquires purchasing target unrelated to its core business.

Effect of Changing Pension Assumptions on Benefit Obligations

Effects On	↑discount rate	↓rate of compensation growth	↑Expected rate of return
PBO	↓	↓	N/A
ABO	↓	N/A	N/A
VBO	↓	N/A	N/A

Ultimately its passing the exam!

I can recall when I had received the result of Level I last year, I had achieved excellence by scoring above 70 in how many areas? You can understand by the word excellence! I feel no doubt in saying that if I had tried to achieve the same excellence in Level II, I would have definitely failed the exam! Am I joking? Certainly not... Thanks God I realized this thing by scoring below 50 in derivatives in a routine test in early days of my preparation. It literally doesn't matter how you've passed the exam unless you haven't failed! Around three months before the exam I had figured out to score above 70 in Equity, Ethics, FRA, Fixed Income and Corporate Finance and guess what... I did that. These areas comprise a major area of the exam and scoring well in them definitely holds weight. I divided my time, energies, practice and revision to focus more on these areas and focus less on other areas. Quants had three readings I didn't give a shit about them. Yes I had spent time on Economics but glad to learn that CFAI has reduced the readings in 2013. So trying to achieve same result in all areas can prove troublesome for many. I would say its better to organize considering the weights. 

Practising through Application

Someone close to me told me that learning through application of CFA knowledge from the real world can help in better understanding of the topics. Initially I didn't realize its importance but after watching myself during the exam connecting topics with news headlines and other bloomberg articles, I can understand its significance. The first three readings of fixed income require understanding and a bit more practice but the last three readings require in depth understanding of MBS, ABS and their valuation. Retaining tranching, CDOs, CMOs, their structures etc. is a tough job. Reading about these instruments more over the internet especially articles and news related to these helps in connecting the topics with the real world happenings. It improves the ability to retain and recall. It worked for me remarkable trying that can also help you...

PS: I have also mentioned several news items related to Fixed Income and Derivatives over this blog. You can check them through the labels.