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Question 1

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An investor compares two managers using the Sharpe ratio over the same period: Manager A 0.70 with 10% volatility, Manager B 0.70 with 18% volatility. The investor can apply leverage at the risk-free rate. Which statement is correct?

Both offer the same risk-adjusted efficiency; the investor can lever Manager A to match Manager B's risk and return

Manager B is strictly superior because of higher volatility

Manager A must have higher alpha

Sharpe ratios cannot be compared across different volatilities

to track

2026 Statistics

Key Facts: CIPM Level II Exam

Scenario-Based Questions

CFA Institute CIPM Exam Page

3 hrs

Exam Duration

CFA Institute CIPM Exam Page

36%

Expert Pass Rate

CFA Institute CIPM Exam Page

30%

Manager Selection Weight

CFA Institute CIPM Curriculum

15%

Ethics and Professionalism Weight

CFA Institute CIPM Curriculum

150+ hrs

Typical Study Time

CIPM Candidate Reports

The CIPM Expert (Level II) exam has 80 scenario-based multiple-choice questions delivered in 3 hours. CFA Institute weights the curriculum across Manager Selection (30%), Performance Attribution Analysis (15-20%), Performance Evaluation and Appraisal (15-20%), Ethics and Professionalism (15%), Portfolio Performance Presentation (10-15%), and Performance Measurement (5-10%). CFA Institute does not publish a fixed raw passing score; it sets a Minimum Passing Score. The reported Expert pass rate is 36%. Candidates must pass CIPM Principles (Level I) first, and the designation also requires qualifying experience and CFA Institute membership.

Sample CIPM Level II Practice Questions

Try these sample questions to test your CIPM Level II exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.

1A consultant is selecting an active equity manager. The manager's portfolio shows a high active return but also a very high tracking error of 9%. Which single statistic best summarizes whether the manager generated active return efficiently per unit of active risk taken?

A.Sharpe ratio

B.Information ratio

C.Treynor ratio

D.Jensen's alpha

Explanation: The information ratio equals active return (excess over benchmark) divided by tracking error (active risk), so it directly measures active return earned per unit of active risk. It is the standard appraisal statistic in manager selection.

2Two managers each have an information ratio of 0.50. Manager A targets a tracking error of 3%; Manager B targets 6%. Under the fundamental law of active management framework, what does an equal information ratio at different tracking-error levels primarily indicate about the two managers?

A.Manager B has more skill because of higher tracking error

B.Both deliver the same active return per unit of active risk

C.Manager A will always outperform Manager B in absolute terms

D.The information ratios cannot be compared at different risk levels

Explanation: The information ratio is risk-adjusted, so equal IRs mean each manager produces the same active return per unit of active risk. Manager B's higher tracking error simply scales the same skill into a larger expected active return and larger active risk.

3A portfolio earned 12% with a standard deviation of 16%. The risk-free rate was 2% and the benchmark earned 10% with a standard deviation of 14%. Using M-squared (M2), what is the portfolio's risk-adjusted return at the benchmark's risk level?

A.10.75%

B.11.50%

C.12.00%

D.8.75%

Explanation: M2 = Rf + Sharpe_p x sigma_benchmark. Sharpe_p = (12 - 2)/16 = 0.625. M2 = 2 + 0.625 x 14 = 2 + 8.75 = 10.75%. Because M2 (10.75%) exceeds the benchmark return (10%), the portfolio outperformed on a risk-adjusted basis.

4An analyst evaluating a long-only equity fund wants a risk-adjusted measure that penalizes only downside volatility rather than total volatility, reflecting that investors dislike returns below a minimum acceptable return. Which ratio is most appropriate?

A.Sharpe ratio

B.Sortino ratio

C.Treynor ratio

D.Information ratio

Explanation: The Sortino ratio replaces total standard deviation in the denominator with downside deviation measured against a minimum acceptable return (MAR), so it only penalizes returns falling below the target. This suits investors who view upside volatility as desirable.

5A manager search committee narrowed candidates to three managers with identical mandates. The committee weights qualitative factors heavily. Which of the following is best classified as a QUALITATIVE factor in manager due diligence rather than a quantitative one?

A.Three-year information ratio

B.Investment philosophy and decision-making process

C.Annualized tracking error

D.Rolling 12-month Sharpe ratio

Explanation: Investment philosophy and decision-making process are qualitative factors that explain WHY a manager may persist in adding value; they cannot be reduced to a single number. The other choices are quantitative statistics derived from return history.

6During manager selection, a committee observes that a manager's strong reported track record was achieved while the firm managed only USD 50 million but the firm now manages USD 8 billion in the same strategy. What due-diligence concern does this most directly raise?

A.Survivorship bias

B.Capacity and scalability of the strategy

C.Backfill bias

D.Style drift toward value

Explanation: A large increase in assets under management raises capacity concerns: a strategy that worked in small-cap or illiquid niches may not scale, causing market-impact costs and diluted alpha. The committee should assess whether the historical edge survives at the much larger asset base.

7A plan sponsor is told that a hedge fund database shows an average return of 11% for the strategy peer group. The sponsor is warned that funds that closed due to poor performance are excluded from the historical averages. Which bias is the sponsor being warned about, and what is its effect?

A.Survivorship bias, which overstates average returns

B.Selection bias, which understates volatility

C.Liquidity bias, which overstates Sharpe ratios only

D.Stale-pricing bias, which overstates correlation

Explanation: Survivorship bias arises when failed or closed funds drop out of a database, leaving only survivors. Because survivors tend to be better performers, reported average returns are overstated and risk is often understated, distorting peer-group comparisons in manager selection.

8A committee uses a returns-based style analysis (RBSA) to verify a manager's stated large-cap value mandate. The regression assigns 40% of return variation to a small-cap growth index. What conclusion is most supported?

A.The manager has demonstrated strong stock selection skill

B.The manager may be exhibiting style drift relative to the stated mandate

C.The benchmark is statistically perfect for the manager

D.The R-squared of the analysis must be below 0.50

Explanation: Returns-based style analysis attributes a portfolio's returns to a set of style indexes. A meaningful loading on small-cap growth for a stated large-cap value manager signals potential style drift, which the committee must investigate before selection or retention.

9In a Brinson-Hood-Beebower (BHB) attribution, a portfolio overweights a sector that outperformed the overall benchmark. Holding security selection constant, this decision contributes positively to which attribution effect?

A.Allocation (selection) effect

B.Currency effect

C.Interaction effect only

D.Timing-of-cash-flow effect

Explanation: In BHB attribution, overweighting a sector that outperforms the total benchmark produces a positive allocation (asset-class or sector selection) effect. The allocation effect captures value added from over/underweighting segments relative to the benchmark.

10An equity portfolio's sector weight in technology is 25% versus a benchmark weight of 15%. The technology sector returned 8% in the portfolio, the benchmark technology sector returned 6%, and the overall benchmark returned 5%. Using the Brinson-Fachler model, what is the allocation effect for technology?

A.0.10%

B.0.20%

C.0.30%

D.1.00%

Explanation: Brinson-Fachler allocation effect = (w_p - w_b) x (R_b,sector - R_b,total) = (0.25 - 0.15) x (0.06 - 0.05) = 0.10 x 0.01 = 0.001 = 0.10%. The Fachler model measures allocation relative to the total benchmark return, rewarding overweighting sectors that beat the overall benchmark.

About the CIPM Level II Exam

The CIPM Expert (Level II) exam is the second exam in the Certificate in Investment Performance Measurement Program. It uses 80 scenario-based multiple-choice questions over 3 hours, emphasizing performance appraisal and manager selection through the application of measurement, attribution, risk-adjusted, and GIPS tools in complex investment decisions.

Questions

80 scored questions

Time Limit

3 hours

Passing Score

CFA Institute Minimum Passing Score; no public fixed raw percentage

Exam Fee

CFA Institute publishes CIPM enrollment and per-level registration fees in its store; fees vary by registration window and exclude local taxes (CFA Institute / Prometric)

CIPM Level II Exam Content Outline

30%

Manager Selection

Manager search, screening, quantitative and qualitative due diligence, operational risk, capacity, fees, monitoring, and combining managers to build efficient multi-manager portfolios.

15-20%

Performance Evaluation and Appraisal

Distinguishing skill from luck, risk-adjusted measures (Sharpe, information ratio, Treynor, M-squared, appraisal ratio, Sortino), benchmark quality, and statistical significance of active return.

15-20%

Performance Attribution Analysis

Brinson allocation, selection and interaction effects, fixed-income and currency attribution, multi-period geometric linking, and ex-ante risk attribution in complex portfolios.

15%

Ethics and Professionalism

CFA Institute Code and Standards and the Asset Manager Code applied to performance presentation, misrepresentation, fiduciary duty, and fair client reporting scenarios.

10-15%

Portfolio Performance Presentation

Advanced GIPS compliance: composite construction, firm definition, verification, portability, wrap/SMA, net-of-fees and money-weighted requirements, and error correction.

5-10%

Performance Measurement

Time-weighted and money-weighted returns, Modified Dietz, valuation frequency, external cash-flow treatment, and accurate return calculation for complex mandates.

How to Pass the CIPM Level II Exam

What You Need to Know

Passing score: CFA Institute Minimum Passing Score; no public fixed raw percentage
Exam length: 80 questions
Time limit: 3 hours
Exam fee: CFA Institute publishes CIPM enrollment and per-level registration fees in its store; fees vary by registration window and exclude local taxes

Keys to Passing

Complete 500+ practice questions
Score 80%+ consistently before scheduling
Focus on highest-weighted sections
Use our AI tutor for tough concepts

CIPM Level II Study Tips from Top Performers

1Prioritize Manager Selection: at 30% it is the single heaviest topic and rewards understanding due diligence, capacity, biases, and multi-manager construction.

2Drill risk-adjusted measures (Sharpe, information ratio, Treynor, M-squared, Sortino, appraisal ratio) until you can compute and interpret each from a scenario.

3Practice Brinson, fixed-income, and currency attribution, and know why multi-period effects must be geometrically linked rather than summed.

4Study advanced GIPS provisions, including composite construction, verification, portability, wrap/SMA, and money-weighted return requirements.

5Treat the exam as item sets: read the scenario carefully, identify the relevant tool, and watch for benchmark, fee, and smoothing traps.

6Do not target an invented raw passing percentage; use mock performance and topic consistency to gauge readiness.

Frequently Asked Questions

How many questions are on the CIPM Expert (Level II) exam?

CFA Institute states that the CIPM Expert (Level II) exam has 80 questions that combine scenarios with multiple-choice items, delivered over a 3-hour exam. The scenario-based format is analogous to CFA Program vignettes.

What is the CIPM Expert exam passing score?

CFA Institute does not publish a fixed raw passing percentage. It sets a Minimum Passing Score for the exam through standard setting, so candidates should aim for consistent mastery across all topics rather than a specific percentage.

What is the CIPM Expert (Level II) pass rate?

CFA Institute reports a 36% pass rate for the CIPM Expert (Level II) exam. The lower pass rate reflects the exam's emphasis on complex application of performance appraisal and manager selection.

What topics are weighted most heavily on CIPM Level II?

Manager Selection is the heaviest topic at 30%, followed by Performance Attribution Analysis and Performance Evaluation and Appraisal at 15-20% each, Ethics and Professionalism at 15%, Portfolio Performance Presentation at 10-15%, and Performance Measurement at 5-10%.

Do I need to pass CIPM Level I before Level II?

Yes. CFA Institute requires candidates to pass the CIPM Principles (Level I) exam before sitting the CIPM Expert (Level II) exam. The Expert exam builds on and increases the complexity of Level I material.

How is the CIPM Expert exam different from Level I?

Level I (Principles) uses 100 multiple-choice questions on foundational concepts, while Level II (Expert) uses 80 scenario-based questions emphasizing performance appraisal, manager selection, and applying tools in complex decision-making.

How long should I study for CIPM Level II?

CIPM candidates commonly report roughly 150-160 hours of study per level. A focused 10-16 week plan that prioritizes Manager Selection, attribution, and risk-adjusted appraisal aligns well with the official topic weights.