BPP Blog

Level III is different. And the biggest reason for that is the nature of the exam. For the first time in your CFA® exam journey you will find yourself looking at a blank piece of paper wondering what to write.

The good news is that everyone else will be feeling the same thing, but how do you make sure you prepare your self for this challenge?

Study techniques

When faced with a choice of 3 options, one of which is correct, the brain has a bit of an advantage. Without that advantage it has to work a bit harder. One way to address this is to pre-prepare some of the things you might be asked. If you think about a typical question there is often a section for 3 or 4 marks where you have to explain a limitation of a theory or define a term used in an equation.

I would spend a bit of time preparing a list of such items and make yourself physically write out the answers. And really do write it down – just like you would prepare for a big presentation by giving it a run through, do the same with this exam. So here are a few I would put on that list:

• Explain the benefits of using Black Litterman for asset allocation
• What are the 5 factors that determine corridor widths and what direction is the impact
• Why use Grinold-Kroner rather than the dividend valuation model
• What are the pros and cons of the three main methods of calculating VaR
• How do you reduce credit risk when dealing with OTC derivatives

Now, if those appear daunting, it is because you do not know them as well as you should. It sounds a harsh message, but it is the truth. But trust me, writing down a couple of sentences for each of these points repeatedly is the best way to prepare for what you will say when the examiner asks you the same question.

Try to keep your answer as simple as possible. So for the first one, a couple of sentences bringing in the fact that Black-Litterman starts from a market portfolio and allows you to tweak the assumptions based on the clients beliefs, and that you end up with a more stable, diversified portfolio is the sort of thing I am looking for, not a detailed exposition of how to create the software behind it.

Who is your marker?

Your marker is not the world expert on the question you are answering. He simply knows that part of the curriculum very well. So don’t try and impress him with things you have seen or done in the real world. If it is not in the pages of the CFA® books, it won’t get any credit. So stick to the syllabus.

Make your marker’s life easy

Imagine that your marker has no calculator. When you write down your answers, everything he needs should be on your page. If you have made a mistake, what you have written should make it possible for him to follow your workings and give you partial marks. Do not expect him to pick up a calculator and try and work out where you got your numbers from. It is your job to show him.

Remember there are always BPP revision courses if you would like more of this exam guidance.