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Free CFA Level II Quantitative Methods Practice Questions

Quantitative methods on the CFA Level II exam cover multiple regression analysis, time-series modeling, machine learning basics, and simulation techniques applied to investment analysis. Weighted 5-10% (CFA Institute).

234 questions 56 easy 125 medium 53 hard 2026 syllabus

Sample Questions

Question 1 Easy
An error correction model (ECM) is appropriate when:
Solution
A is correct.

An error correction model is used when variables are cointegrated — they share a long-run equilibrium relationship despite being individually non-stationary. The ECM includes both first-differenced terms (capturing short-run dynamics) and an error correction term (capturing the speed of adjustment back to the long-run equilibrium). This allows the model to incorporate both short-term fluctuations and long-run relationships.
Question 2 Medium
Principal Component Analysis (PCA) is a technique used to:
Solution
C is correct.

PCA is an unsupervised dimensionality reduction technique. It transforms a set of possibly correlated variables into a smaller number of uncorrelated variables called principal components. Each component captures the maximum remaining variance in the data. PCA is widely used to simplify high-dimensional datasets while retaining most of the information.
Question 3 Hard
Using the HY-class precision and recall, the F1 score for the HY class is closest to:
Solution
B is correct.

The F1 score is the harmonic mean of precision and recall, which penalizes imbalance between the two more than a simple average would. For the HY class, Precision=260/340≈0.765\text{Precision} = 260/340 \approx 0.765 and Recall=260/300≈0.867\text{Recall} = 260/300 \approx 0.867.
F1=2×Precision×RecallPrecision+Recall=2×0.765×0.8670.765+0.867=1.3261.632≈81.3%F1 = \frac{2 \times \text{Precision} \times \text{Recall}}{\text{Precision} + \text{Recall}} = \frac{2 \times 0.765 \times 0.867}{0.765 + 0.867} = \frac{1.326}{1.632} \approx 81.3\%
Because the harmonic mean lies below the arithmetic mean whenever precision and recall differ, the F1 score (81.3%) is lower than the simple average (81.6%).

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