Free CFA Level II Derivatives Practice Questions (2026)

Sample Questions

Question 1 Easy

Which of the following statements about option Greeks is most accurate?

Solution

A is correct.

Vega measures how much an option's price changes for a one-percentage-point change in the implied volatility of the underlying asset. Both calls and puts have positive vega, meaning they increase in value when volatility rises.

Question 2 Medium

An FRA described as a 6x12 FRA covers a borrowing period that:

Solution

B is correct.

An FRA described as 'AxB' (e.g., 6x12) means:
- The FRA settlement date is in A months (6 months from today).
- The underlying loan period ends in B months (12 months from today).
- The FRA covers the period from month 6 to month 12 (a 6-month borrowing period).

So a 6x12 FRA is a forward agreement on the 6-month interest rate, starting 6 months from now.

Question 3 Hard

Based on the vignette, the no-arbitrage 6-month forward rate for EUR/USD is closest to:

Solution

B is correct (1.0698).

Using covered interest rate parity with continuous compounding. The quote is EUR per USD, so EUR is the domestic currency and USD the foreign currency:

F_{0} = S_{0} e^{(r_{E U R} - r_{U S D}) T} = 1.0800 e^{(0.0320 - 0.0510) (0.5)} = 1.0800 e^{- 0.0095} = 1.0800 \times 0.99054 = 1.06979.

The computed value 1.06979 rounds to 1.0698 (choice C), not 1.0697.

Create a Free Account to Access All 91 Questions →

This topic is one part of the full Free CFA Level II Practice Questions, free with step-by-step solutions and no signup.

Guides & Articles

About FreeFellow

Jeffrey Ting

FSA, CFA · Founder

FreeFellow was built by Jeffrey Ting, a credentialed actuary and CFA charterholder who passed thirteen of the hardest exams in finance on the first attempt, and paid four-figure prep fees for every one. The learning itself was always free. The price was a moat.

So he started writing his own questions, then lessons, then mock exams, until it grew into a full prep platform covering 35 finance credentials with more than 40,000 original practice questions. The name says exactly what it is: the question bank is free, and Fellow is what you become once you pass. FreeFellow LLC is a CFA Institute Prep Provider. Its CFA® exam materials are validated by CFA Institute for substantial curriculum coverage and updated annually.

Cost shouldn't decide who gets in.

The exam is a fair gate. A four-figure prep course is not. FreeFellow takes the second gate down, so the exam is the only one left.

Free should mean free.

No trial clock, no email gate, no credit card. The question bank, worked solutions, lessons, and readiness score stay free, and they are enough to pass.

Built by someone who sat where you sit.

He paid for the big-name courses, found nothing he respected, and built the prep he wished had existed. Not a marketing team that has never sat an exam.

Meet the founder ›Read the values ›