CAIA Level I to Level II: prerequisite diagnostic and bridge plan
Test four foundations before starting Level II: fund performance, cash-flow timing, exposure and evidence quality. Use the worked answers to choose a targeted repair, then apply the method in an investor decision.
| Check | Try without notes | If it fails |
|---|---|---|
| Performance | Separate realized and residual value | Review fund multiples and valuation limits |
| Liquidity | Put calls and resources on one timeline | Rebuild a funding calculation |
| Exposure | Explain gross versus net and stress loss | Review leverage and joint moves |
| Evidence | Distinguish a claim from support | Practise a due-diligence question |
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How to use the four checks
Attempt the four original tasks below without notes before opening each answer. For your own planning, mark each response 0 if you cannot produce the method, 1 if you can state it but need help applying it, or 2 if you can apply and explain it. Record the reason beside the label. This is a study triage tool, not an official score, validated diagnostic or pass prediction.
Treat any 0 as a named prerequisite repair. Treat a 1 as a prompt for changed-case practice. A 2 means you can begin the corresponding Level II work while retaining brief review. Do not use a summed score to exempt yourself from assigned readings: four examples cannot cover the curriculum.
| Your observation | Next action | Recheck |
|---|---|---|
| Cannot explain the method | Rebuild the foundation with a worked example | A similar task without notes |
| Can define it, not apply it | Connect the method to an investor constraint | A changed case with a justified choice |
| Can apply and explain it | Begin the current Level II outcome | Later mixed retrieval |
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Check 1: performance is not the same as cash returned
An investment has $12m paid in, $5m distributed and $13m residual NAV. The investment committee sees a total-value multiple and asks whether the holding has already returned its cost in cash. Produce the calculation and answer that question before looking below.
Try it before reading the answer
Calculate DPI and TVPI. Has contributed capital been fully returned in distributions? What should you ask about the residual value?
Show worked answer
DPI = 5 / 12 ≈ 0.42x. TVPI = (5 + 13) / 12 = 1.50x. Distributions have not returned the $12m contributed capital. Ask how the $13m residual NAV was valued and what supports its realization. If you used TVPI to answer the cash-returned question, repair the distinction between realized and unrealized value.
Check 2: timing can change the recommendation
An institution has $9m available now, expects $4m spending and $7m calls before year end, and expects a $5m distribution after those obligations fall due. Do not treat a later inflow as if it were already available. Make the timing explicit in your answer.
Try it before reading the answer
Calculate the gap before the distribution and explain why a positive full-period total can be misleading.
Show worked answer
Before the distribution, 9 - 4 - 7 = -$2m: a $2m shortfall. Including the later $5m inflow gives a positive $3m aggregate, but it does not fund obligations due earlier. Repair by drawing a timeline and considering only resources available by each payment date.
Check 3: a small net position can hide a large loss
A simple long/short portfolio has longs equal to 110% of NAV and shorts equal to 90%. In a stress, the long assets fall 8% and the shorted assets rise 6%. Ignore financing, fees and other positions. Calculate position sizes and then the loss.
Try it before reading the answer
What are gross and net exposure, and what is the simplified loss relative to NAV?
Show worked answer
Gross is 200% and net is 20%. Long losses are 110% × 8% = 8.8% of NAV; short losses are 90% × 6% = 5.4%. Total loss is 14.2% of NAV. Low net exposure did not prevent both books losing. If you expected a near-zero loss, review basis risk, gross exposure and stress co-movement.
Check 4: decide what the evidence actually establishes
A manager advertises independent valuation review. The only supplied third-party document confirms custody and reconciliation. You are asked whether the valuation claim has been verified. Separate an unsupported claim from a proven falsehood.
Try it before reading the answer
What can you conclude, what should you request, and how does the gap affect the analysis?
Show worked answer
The supplied document does not establish valuation review. Request the reviewer’s scope, valuation policy and evidence of completed checks. Treat the valuation claim as unresolved until supported. The gap affects confidence in NAV; it does not alone establish misconduct. If you accepted the claim because a third party was named, practise linking each assertion to relevant evidence.
Build a two-week bridge from the results
In week one, repair only the foundations exposed by the checks, alongside a review of the current Level II outcomes. For each weak method, reconstruct it, solve a changed example and explain its limitation. Keep strong methods in short retrieval rather than restarting all of Level I.
In week two, attach each repaired method to an investor task: a multiple to a manager question, a cash-flow calculation to a commitment decision, an exposure measure to a stress interpretation and an evidence gap to a due-diligence action. Write the conclusion and reason without answer choices. Extend the bridge if prerequisites remain unreliable; do not present two weeks as sufficient for every background.
| Week | Work | Output |
|---|---|---|
| 1 | Foundation repair plus current-scope review | Correct changed examples and a list of remaining gaps |
| 2 | Investor applications and short written answers | Case-specific conclusions with supporting facts |
| After the bridge | Follow the Level II curriculum | Keep brief prerequisite retrieval alongside new work |
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Common questions
- What percentage of Level II overlaps with Level I?
- No defensible percentage is established here. Matching topic labels does not measure shared learning outcomes or exam items. This diagnostic identifies reusable methods instead.
- Does passing these checks mean I can skip Level II readings?
- No. Four planning probes cannot cover the assigned curriculum or establish exam readiness. Use them to choose prerequisite repairs, then study the current Level II outcomes.
- How is this different from the level comparison?
- The comparison explains the differences between levels. This page asks you to perform tasks, inspect worked answers and choose a repair plan.
Sources and editorial notes
By MiloPrep editorial team. References checked 10 October 2026. Exam scope: 2027. The notes below identify what each reference supports. Provider claims are not independent outcome comparisons. Worked examples, study schedules and fit judgments are editorial; official exam dates are attributed separately.
- CAIA 2027 curriculum overview
Current level-specific subject coverage. Teaching examples on this site are independent.
- CAIA curriculum and study tools
Annual curriculum applicability, included digital curriculum, official samples and required readings.
- 2027 Level II Curriculum Companion
Official Level II learning objectives and terms; linked from CAIA’s study-tools page.
MiloPrep is an independent study resource, not affiliated with or endorsed by CAIA Association or the named providers.