Clevency
Short answer
CFA Level 3 constructed response (essay) questions give you a short case and ask you to calculate, determine, justify or recommend something in your own words. Each session mixes essay sets with item sets, and points are tied to the specific elements the command word asks for. The model answers below show what a full-credit answer looks like: short, direct, using the case facts, and answering exactly what was asked.
The essay questions are where Level 3 differs most from Levels 1 and 2. There are no answer choices to check against, and candidates who know the material well can still lose points by writing too much, answering a different question, or forgetting to justify. The fastest way to improve is to practise with real-format questions and compare your answer with a model one, line by line.
The three questions below are original Clevency practice questions written in the Level 3 style. They are not past CFA Institute exam questions. For official examples, use the practice materials in the CFA Institute Learning Ecosystem.
How the Level 3 essay section works
| Feature | What to expect |
|---|---|
| Structure | Two sessions of 132 minutes. Each session contains both essay (constructed response) sets and multiple-choice item sets |
| Essay sets | 11 in total across the exam, each with a case and one or more questions |
| Item sets | 11 in total, each with four multiple-choice questions |
| Answers | Typed into an answer box on screen |
| Marking | Points are awarded for each element the question requires, such as a correct calculation, a correct conclusion and a supporting justification |
The command word tells you how much to write. Calculate needs the working and the number. Determine or Identify needs a conclusion. Justify needs the conclusion plus the specific case fact that supports it. Discuss and Explain need reasoning. Our Level 3 essay strategy guide covers time management and writing habits in more depth.
Sample question 1: IPS return requirement
Mara Lindqvist, 55, has just sold her business. She holds a $2,000,000 portfolio in a tax-exempt account and needs $90,000 per year from it to cover living expenses, rising with inflation. Expected inflation is 2.5% per year. She wants to preserve the real value of the portfolio for her children. Mara says she "lost sleep" during a 15% market fall last year and wants to avoid anything similar. Her other assets are minimal.
A. Calculate Mara's required nominal annual return. Show your calculations. (2 points)
B. Determine whether Mara's ability to take risk is below average, average or above average. Justify your response with one reason. (2 points)
Model answer A.
- Real spending requirement = 90,000 ÷ 2,000,000 = 4.5%
- Nominal required return = (1.045 × 1.025) − 1 = 7.11% (an additive answer of 7.0% is generally also accepted)
Model answer B.
- Below average.
- Mara depends entirely on this portfolio to fund her spending, because her other assets are minimal, so a large loss would directly threaten her standard of living.
Why this earns full points. Part A shows both steps, so a small arithmetic slip would still earn partial credit. Part B gives one conclusion and one reason, exactly as asked. Notice what the answer does not do: it does not discuss Mara's willingness to take risk. Her comment about losing sleep is about willingness, which is a separate question, and including it does not earn points here.
Sample question 2: behavioural bias
Daniel Okafor, 48, is a senior executive with a $12 million portfolio, far more than he needs to fund his lifestyle. Three years ago he bought a large position in a biotech stock that has since fallen 60%. His adviser recommends selling it to reduce concentration. Daniel refuses: "I'm not selling until it gets back to what I paid. Selling now would make the loss real."
A. Identify the behavioural bias Daniel is exhibiting and state whether it is cognitive or emotional. (2 points)
B. Recommend whether the adviser should moderate or adapt to the bias. Justify your response. (2 points)
Model answer A.
- Loss aversion (holding a losing position to avoid realising the loss).
- It is an emotional bias.
Model answer B.
- Adapt.
- The bias is emotional and therefore hard to change, and Daniel's wealth is far above his needs, so the bias does not threaten his standard of living. The adviser can accept the position while managing concentration elsewhere in the portfolio.
Why this earns full points. The justification uses both factors the curriculum relies on: the type of bias and the client's wealth relative to needs. A common mistake is to justify with only one. Candidates also lose points by naming the disposition effect without classifying it. For a full list of biases and how each is tested, see our behavioural finance biases guide.
Sample question 3: equity futures hedge
A pension fund holds a $50 million equity portfolio with a beta of 1.2. The investment committee wants to reduce the portfolio beta to 0.8 for the next three months using index futures. The futures price is 4,000, the contract multiplier is 250 and the futures beta is 1.0.
A. Calculate the number of futures contracts needed and state whether the fund should buy or sell them. Show your calculations. (2 points)
B. Explain one reason the actual beta after hedging may differ from 0.8. (1 point)
Model answer A.
- Value of one contract = 4,000 × 250 = $1,000,000
- N = [(0.8 − 1.2) ÷ 1.0] × ($50,000,000 ÷ $1,000,000) = −0.4 × 50 = −20
- Sell 20 contracts.
Model answer B.
- The portfolio's beta is an estimate from historical data and may change over the hedge period, so the realised beta may not equal 0.8.
Why this earns full points. The sign matters: a negative number means sell, and stating "sell" explicitly removes any doubt. For part B, one clear reason is enough. Writing three reasons takes time and earns nothing extra.
The mistakes graders see most
Answering the topic instead of the question. If the question asks about ability to take risk, discussing willingness earns nothing, however correct it is.
Missing the justification. "Below average" alone earns at most half the points on a "determine and justify" question.
Generic justifications. "Because she is risk averse" is weaker than "because her other assets are minimal and she depends on this portfolio". Use the case facts.
Over-writing. Long answers take time from later questions and can bury the point the grader is looking for. Bullet points are acceptable.
Hedging your answer. Giving two conclusions ("below average or average") is usually marked as no conclusion. Pick one.
How to practise essays
Write your answers under time pressure, then mark them against a model answer using a strict rule: a point counts only if the specific element is clearly there. Keep a list of the elements you keep missing. Most candidates find the same two or three problems repeat, usually missing justifications and answering a slightly different question. Start essay practice early, because this is a writing skill and it improves with repetition. For the wider plan, see our Level 3 study plan for working professionals.
Frequently asked questions
What is the format of CFA Level 3 essay questions?
Essay (constructed response) questions present a short case and ask you to type answers such as calculations, conclusions and justifications. Each exam session contains both essay sets and multiple-choice item sets.
How many essay questions are on CFA Level 3?
The exam contains 11 essay sets and 11 item sets across two sessions of 132 minutes each. The number of questions within each essay set varies.
Can I use bullet points in CFA Level 3 essays?
Yes. Short, clear bullet points that address each required element are generally the most efficient way to answer.
Are these sample questions from past CFA exams?
No. They are original practice questions written by Clevency in the Level 3 style. Official practice questions are available through CFA Institute.
Do I get partial credit on Level 3 essay questions?
Points are tied to the elements the question requires, so showing your working on calculations and giving a correct conclusion can earn points even if another part is wrong.
What does "justify" mean in a CFA Level 3 question?
It means giving your conclusion and a specific reason from the case that supports it. A conclusion without a reason earns only part of the available points.
How long should a CFA Level 3 essay answer be?
As short as possible while covering every element the command word requires. Usually that means one to three bullet points per part.
Related Reading
- CFA Level 3 Essay Strategy — Format, grading logic and writing habits
- CFA Behavioural Finance Biases — The biases Level 3 tests most
- CFA Level 3 Pass Rate — The numbers and the first-timer gap