How to attempt Item Sets in CFA exams?

The questions asked in CFA level I exam are stand alone questions where the candidate has to attempt one question at a go. It is a very simple format and candidates do not find it chilling. However, in CFA level II and CFA level III exams, it becomes little tricky as the questions are in item set format.

The question format (item set) can play a vital role between pass and fail. Most of the candidates are very comfortable with the individual question format and can easily score more than 80% in that format. However, if the same questions are given in item set format, the accuracy falls down to 60-65% level or may be even lower than that. Many candidates do not get enough practice of item set kind of questions and end up getting a band between 8 and 10. Those bands hurt a lot when you are so close and yet so far. I know few candidates who got a band of 9/10 in consecutive attempts even though they knew the syllabus inside out. They are generally not comfortable with the exam format.

So, it becomes very important to practice enough of item set kind of questions and to make a good strategy for attempting the item set. There are few basic strategies which you can follow but you need to practice enough to make a customized strategy for yourself. (Doesn’t this customized word always remind you of forward contract? Maybe I am drunk on curriculum books!)

Some important details about item set kind of format: Many candidates are worried about that if they get one question wrong, they might get all of other questions wrong in the item set. Haven’t you ever thought, what would happen if you get one data wrong and end up doing the entire item set wrong? For example, you mistakenly calculate the change in working capital in Equity and end up making all of your FCFF/FCFE calculation wrong and all questions might be based on that. If you fear that, then I have some good news for you. You need not worry about that. CFA exam makers understand that very well. Rest assured that by mistakenly calculating one thing wrong won’t have a huge impact as most of the questions are independent of each other. So, if you are using a prep provider where you are getting all the questions wrong because of one silly mistake, then that prep provider has not done justice with their content.

There is a high probability of getting at least 2 completely theoretical questions in an item set even if the item set is testing Quantitative Methods or Derivatives. It is a general myth that it is easy to score well in theoretical questions. The theoretical questions are generally conceptual and difficult to attempt successfully. Candidates generally tend to make silly mistakes in theoretical conceptual questions because the other wrong option looks almost correct especially for the subjects like Ethics and Corporate Finance.

Many candidates find it difficult to finish the paper in 3 hours. Let me tell you how the panic would set in last 30 minutes or so if you are not well prepared. If you have a habit of skipping question which you couldn’t get hold at in first go and come back to those questions at the later stage. This strategy works really well for the level I exam. But it can backfire in level II exam because when you come back to the question again, you might have to again read the entire item set. Suppose you skip 10-12 questions from 5-6 item sets and last 30 minutes are left. It can lead to a panic button at this stage. But there will always be some questions where you won’t be sure. What to do with those questions? Is there some way out? Well, that depends on from subject to subject. The pressure makes Manchester United to score consistently in last few minutes of the game and the same pressure makes the South African Cricket teams to choke and to snatch defeat from the jaws of victory. However, the best way to deal with it is to practice so much so that you have enough time left (around an hour) for those few remaining questions.

Let’s discuss few of the strategies which have been used by many candidates in the past with mixed results. One of these strategies (may be in tweaked form) can be effective for you as well.

The Genius Strategy: Well, some guys are the genius kind. They are so comfortable with the curriculum that they happen to solve the entire paper in 2 hours and generally end up scoring more than 70% marks in 8-10 subjects. If you are that kind of person, then it is advisable that you recheck your calculations again not at the end of the exam, but after solving each item set. That would save a considerable amount of time and effort in the end. You can skip doing that in between as well if you are going slowly on the exam. It is also advisable that you attempt your weak areas (if there are any) in the middle when the concentration tends to be maximum. Leaving the weaker areas for the end would not do any good.

The Conformer Strategy: This is the most basic strategy which is generally used by the people who haven’t tried any other strategy to solve the exam. But still for few candidates, this could be the ideal strategy. Simply read the complete item set, underline the important points (where there is a possibility of a trap), then, attempt each question one by one. This strategy is ideal for guys who have a good reading comprehension capability and can read at a faster rate. A CFA item set would have around 400-500 words and on an average two Exhibits with some data. A guy with a good reading speed can finish the reading part in 3-4 minutes and comprehend that as well. Now, each question can be given 2 minutes. Attacking and solving the topics in which you are comfortable in the beginning is a good way to execute this strategy. If you can solve 5 item sets in 60-75 minutes, there is nothing like that. This strategy can lead to pa panic button at the end of the exam. So, it is very important to write the details about the question when you plan to skip any. For example, you plan to skip a question on calculation of percentage of active portfolio in an optimal portfolio in Portfolio Management (Please don’t ask me whether this could come in the exam or not. If anything is given in the CFA curriculum books and they have not explicitly mentioned that it will not come, that part can come in the exam), then you can write in the exam that for solving that question, you would need to read this paragraph only or this Exhibit so that when you come back later, you don’t end up wasting a good amount of time in solving that question.

The Cheater Strategy: Few of you might not have cheated in the exams. So, let me explain to you what this strategy is all about. The cheater here doesn’t mean that the person doesn’t know anything and is entirely dependent on the other guy’s answer sheet. The cheater here refers to people who have the brain which if shown some important word (clues) or phrase, can remember everything related to it. So, by looking at few words, the cheater can remember most of the things and can write that in the exam. Now, this is not a subjective exam. But it is important to use this strategy in the objective exam as well. They have such brains that if they get few key words in their mind, their mind can subconsciously work on the answer. For that to occur they need to give a look to the questions in the item set in one go and it should not take more than 30 seconds. There will be few key words which will click in their mind and that would make all the difference. While reading through the item set, their mind will be hunting for the answers for those questions subconsciously and they would be in far better condition when they come back to solving the questions.

Backward Induction Strategy: Don’t shoot me if this reminds you of valuing interest rate options using the Binomial method. But that’s how it works for most of the fellows. They tend to concentrate more when they are aware of the questions. Many successful candidates have executed this strategy. Read the questions carefully before reading the item set. Then go back to the item set and as soon as you get the answer for any question, just mark the answer and keep on reading. There are many ways to execute this. So, it requires a lot of tweaking.

One way is to read few of the questions which you can retain rather than reading all the questions. For some candidates, this is the optimal strategy (Yes guys, even here also we need to find the optimal strategy with the highest Sharpe ratio). Another way can be to read the numerical related questions only or non-numerical questions only and then try reading the item set. Some strategy involves even reading of options as well apart from reading questions especially in the case of subjects like Ethics where the options are more important than the questions.

Wheat and Chaff Strategy: Some guys have developed a good habit of acquiring the gist of anything by just looking at it. Some guys are good with numbers and they can run through the entire item set by looking at the numbers only and catching the important details from Exhibit and other such things. These guys have a habit to quickly run through the 400-500 words item set in 1-1.5 minutes. Then, they can start attacking questions and giving more time to questions rather than reading the item set. Some guys are the master at that. For them, the item set behaves like a single individual question.

This strategy can be developed with enough practice. Once you have practiced enough, you tend to know that what would be running in the examiner’s mind while setting the item set. And then you need not read the redundant part and just read the part which is necessary for solving the questions. If you can separate the chaff from the wheat, it could lead to lots of time saving. And that saved time can be applied in your weaker areas.

Mixed Strategy: It is not necessary to apply the same strategy for every subject. One can have a different strategy from the above for different subjects. For example, one can go with Wheat and Chaff strategy for subjects like Quantitative Methods and Equity Investments and Backward Induction Strategy for subjects like Ethics and Economics.

To find an optimal strategy for yourself, you need to practice enough item sets. And the best thing with that practice is that it would further improve your chances of passing the exam. The best item sets can be found in the curriculum books, current year mock exam, and previous years’ mock exams. Try to finish those first before moving to any other prep provider material. You can refer to this for free practice of item set questions. I hope you guys can find a way to maximize your score in the exam and you do not have to painfully wait for 2 months (like the borderline candidates do). I hope that after attempting the exam, you are dead sure of clearing the exam. I wish all the best for your preparations. Stay focused.



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4 thoughts on “How to attempt Item Sets in CFA exams?

  1. Vaibhav April 4, 2013 at 3:58 am Reply


  2. Lisa Tran May 18, 2013 at 5:00 pm Reply

    Thanks for these great strategies. I’ll try practising and hopefully they’ll work for me.

  3. […] Practice enough item sets for your preparation. Try to improve your score to 80% in mocks. 80% targeting will cover the bad performance in the morning exam. You can study more about how to tackle the item set questions from here. […]

  4. […] You can find many strategies to attempt item set questions from here. […]

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A blog of the NYU Colloquium on Market Institutions and the Leipzig Colloquium on the Market Order

Fundoo Professor

Thoughts of a teacher & practitioner of value investing and behavioral economics

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