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CFA Level2 Vocab
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certifications
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cfa
Instructions:
Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
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This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. With reference to a transaction or a security - one that would increase earnings per share (EPS) or result in EPS higher than the com-pany's basic EPS-antidilutive securities are not included in the calculation of diluted EPS.
Intergenerational data mining
Historical simulation (or back simulation)
Net realizable value
Antidilutive
2. A legal restriction that dividends cannot exceed retained earnings.
Covariance
Quintiles
Impairment of capital rule
Net realizable value
3. An opportunity to conduct an arbitrage; an opportunity to earn an expected positive net profit without risk and with no net investment of money.
Hostile transaction
Shark repellents
Time series
Arbitrage opportunity
4. The probability of the joint occur-rence of stated even ts.
Clean surplus accounting
Joint probability
Differentiation
Single-payment loan
5. An equation describing the expected return on any asset (or portfolio) as a linear function of its beta relative to the market portfolio.
Capital asset pricing model (CAPM)
Purchase method
Clean surplus accounting
Number of days of receivables
6. A money measure of the goods and services produced within a country's borders over a stated time period.
Indirect format (indirect method)
Double taxation
Payoff
Gross domestic product
7. Costs of research and development in progress atan acquired company; often - part of the purchaseprice of an acquired company is allocated to suchcosts.
Purchased in-process research and development costs
Asset-based loan
Completed contract
Free cash flow to the
8. The value derived using a sum-of-the-parts valuation.
Breakup value or private market value
Equity carve-out
Nominal scale
Bayes' formula
9. A swap transaction in which at least one cash flow is tied to the return to an equity portfo-lio position - often an equity index.
Sole proprietorship
Active specific risk or asset selection risk
Residual loss
Equity swap
10. The required rate of return on com-mon stock.
Cost of equity
Nonparametric test
Standard deviation
Vega
11. A merger; the term may be applied to any transaction - but is often used in reference to hos-tile transactions.
Takeover
Segment debt ratio
Covered interest arbitrage
Held-to-maturity investments
12. Options originally created with expirations of sev-eral years.
Operating leverage
Floorlet
Blockage factor
Long-term equity anticipatory securities (LEAPS)
13. A payment system in which cus-tomer payments are mailed to a post office box and the banking institution retrieves and deposits these payments several times a day - enabling the company to hav use of the fund sooner than in a centralized system in wh
Historical exchange rates
Semivariance
Lockbox system
Paired observations
14. An attempt to take control of a company through a shareholder vote.
Proxy fight
Frequency polygon
Joint venture
Currency swap
15. A reduction in the number of shares outstanding with a corresponding increase in share price - but no change to the company's underlying fundamentals.
Split-off
Holding period yield (HPy)
Mean excess return
Reverse stock split
16. A measure of goodness-of-fit of a regres-sion that is adjusted for degrees of freedom and hence does not automatically increase when another independent variable is added to a regression.
Adjusted R2
Market risk
Random variable
Captive rmance subsidiary
17. Assets and liabili-ties that are not monetary assets and liabilities. Nonmonetary assets include inventory - fixed assets - and intangibles - and nonmonetary liabili-ties include deferred revenue.
Creditor nation
Exchange rate
Nonmonetary assets and liabilities
Winner's curse
18. An esti-mate of a country's equity risk premium that is based upon the historical averages of the risk-free rate and the rate of return on the market portfolio.
Historical equity risk premium approach
Sell-side analysts
Weighted harmonic mean
Platykurtic
19. With reference to investmentselection processes - an approach that involves selection from all securities within a specified investment universe - i.e. - without prior narrowiNg of the universe on the bas' s of macroeconomj c or overall market consid
Other comprehensive income
Exchange for physicals (EFP)
Bottom-up analysis
Efficient frontier
20. A measure of correlation applied to ranked data.
Expected value
Probability density function
Skewness
Spearman rank correlation coefficient
21. The existence of an exact linear relation between two or more independent vari-ables or combinations of independent variables.
Degrees of freedom (df)
Perfect collinearity
Cost approach to value
First-differencing
22. An electronic payment network available to businesses - individuals - and financial institutions in the United States - U.S. -Territories - and Canada.
Simple interest
Automated Clearing House
Ex-dividend
Information ratio (IR)
23. The naturalloga-rithm of 1 plus the holding period return - or equivalently - the natural logarithm of the ending price over the beginning price.
Continuously compounded return
Captive rmance subsidiary
Standard cost
Cross-sectional data
24. A model for pncmg futurescontracts in which the futures price is determinedby adding the cost of carry to the spot price.
Theta
North
Derivative
Cost of carry model
25. In reference to <wrporate taxes a split-rate system taxes earnings to be distributed as dividends at a different rate than earnings to be retained. Corporate profits distributed as dividends are taxed at a lower rate than those retained in the busine
Theory of contestable markets
Bond indentnre
Statistic
Split-rate
26. An amount equal to net taxes minus government expenditure on goods and services.
Government sector surplus or deficit
Valuation allowance
Asset-based loan
Pooling of interests accounting method
27. Observations on characteristic(s) of the same observational unit through time.
Longitudinal data
Heteroskedastic
Dummy variable
Mismatching strategy
28. The capital structure at which the value of the company is maximized.
Time value of money
Backtesting
Liruit down
Optimal capital structure
29. A transaction between two affiliates - an investor company and an associate company such that the investor company records a profit on its income statement. An example is a sale of inven-tory by the investor company to the associate.
Confidence interval
VISibility
Multiple
Downstream
30. An act passed by the U.S. Con-gress in 1933 that specifies the financial and other significant information that investors must receive when securities are sold - prohibits misrepresenta-tions - and requires initial registration of all public issuance
Securities Act of 1933
Installment
Crawling peg
Discounted cash flow analysis
31. The sum of the observations divided by the number of observations.
Trailirig dividend yield
Derivatives dealers
Arithmetic mean
Interest rate collar
32. An approach to recognizing credit losses on customer receivables in which the company waits until such time as a customer has defaulted and only then recognizes the loss.
Direct write-off method
Winsorized mean
Bond-equivalent yield
Proxy statement
33. The standard deviation of active returns.
Prior probabilities
Generalized least squares
Asset-based approach
Active risk
34. The present value of an investment's cash inflows (benefits) minus the present value of its cash outflows (costs).
Payment netting
Platykurtic
Net present value (NPV)
Subsistence real wage rate
35. The intercept and slope coefficient(s) of a regression.
Trailing P/E (or current PIE)
Regression coefficients
Ordinary shares (common stock or common shares)
Hurdle rate
36. The excess of assets over liabilities; the residual interest of shareholders in the assets of an entity after deducting the entity's liabilities.
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37. A possible value of a random variable.
Outcome
Expected value
Revenue
Cash settlement
38. The fair value of the estimated costs to be incurred at the end of a tangible asset's service life. The fair value of the liability is determined on the basis of discounted cash flows.
Designated fair value instruments
Asset retirement obligations (AROs)
Clearinghouse
Bear spread
39. A theory of economic growth that proposes that real CDP per person grows because technological change induces a level of saving and investment that makes capital per hour oflabor grow.
Degree of confidence
Treasury stock method
Neoclassical growth theory
Takeover premium
40. An option in which the underlying is a stock index.
Aging schedule
Index option
Cap
Vested benefit obligation
41. Investments in which investors exert significant influence - but not con-trol - over the investee. Typically - the investor has 20 to 50 % ownership in the investee.
Linear trend
Minority active investments
Pecking order theory
Recapture premium
42. A guarantee from the clear-inghouse that if one party makes money on a transaction - the clearinghouse ensures it will be paid.
Valuation allowance
Mode
Performance guarantee
Subjective probability
43. The strategy a company fol-lows with regard to the amount and timing of div-idend payments.
Fiduciary call
Diluted shares
Dividend payout policy
Asset-based approach
44. The quantity of real CDP pro-duced by an hour of labor.
Coefficient of variation (CV)
Labor productivity
Perpetuity
Mixed factor models
45. Analysis that shows the changes in key financial quantities that result from given (economic) events - such as the loss of customers - the loss of a supply source - or a catastrophic event; a risk management technique involving examina-tion of the pe
Scenario analysis
Liruit move
Paired observations
Unearned revenue (deferred revenue)
46. All members of a specified group.
Cash equivalents
Accrued interest
Owners' equity
Population
47. The value per share of a no-growth company - equal to the expected level amount of earnings divided by the stock's req uired rate of return.
No-growth value per share
Binomial model
Single-step format
Mismatching strategy
48. A financial covenant made in conjunction with existing debt that restricts a company's ability to incur additional debt at the same seniority based on one or more financial tests or conditions.
Breusch-Pagan test
Revenue
Debt incurrence test
Put
49. A rule explaining the expected value of a random vari-able in terms of expected values of the random variable conditional on mutually exclusive and exhaustive scenarios.
Total probability rule for expected value
Quintiles
Probability function
Winner's curse
50. Financial ratios measuring the com-pany's ability to meet its short-term obligations.
Correlation
Liquidity ratios
Cap
Expiration date
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