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CFA Level2 Vocab
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Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
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1. A yield on a basis comparable to the quoted yield on an interest-bearing money market instrument that pays interest on a 360-<iay basis; the annualized holding period yield - assuming a 360-<iay year.
Money market yield (or CD equivalent yield
Constant maturity swap or
Dutch Book theorem
Mark-ta-market
2. A tabular display of data summarized into a relatively small number of intervals.
IRR rule
Interest rate collar
Frequency distribution
Clearinghouse
3. A method of accounting for a business combination where the acquirer is required to measure each identifiable asset and liability at fair value. This method was the result ofa joint project of the IASB and FASB aiming at convergence in standards for
Foreign currency transactions
Forward contract
Combination
Acquisition method
4. Costs that remain at the same level regardless of a company's level of production and sales.
Population mean
Held-to-maturity investments
Valuation
Fixed costs
5. A swap in which the floating payments have a lower limit.
Growth investors
Floored swap
Proxy fight
Investment objectives
6. A model of stock valuation that views intrinsic value of stock as the sum of book value per share plus the present value of the stock's expected future residual income per share.
Independent projects
Residual income model (RIM) (also discounted ahnormal earnings model or Edwards-Bell-Ohlson model)
Debt covenants
Perfect collinearity
7. The proportional annual benefit that results from making an investment.
Root mean square(l er ror (RMSE)
Two-sided hypothesis test (or two-tailed hypothesis test)
Factor sensitivity (also factor betas or factor loadings)
Rate of return
8. Instruments that payinterest as the difference between the amountborrowed and the amount paid back.
Free cash flow to equity model
Pure discount instruments
Financial futures
Equity options
9. The investigation of issues relating to the accuracy of reported accounting results as reflections of economic per-formance; quality of earnings analysis is broadly understood to include not only earnings manage-ment - but also balance sheet manageme
Quality of earnings analysis
Asset-based approach
Account
Type I error
10. The cost of borrowing expressed as a yearly rate.
Inventory turnover
Installment method (installment-sales method)
Allowance for bad debts
Annual percentage rate
11. A method of estimating VAR that uses data from the returns of the portfolio over a recent past period and compiles this data in the form of a histogram.
Cost of carry
Historical method
Implied yield
Basic earnings per share (EPS)
12. Independent projects are projects whose cash flows are independent ofeach other.
Independent projects
Scalper
Dividend rate
Dynamic hedging
13. Assets lacking physical substance - such as patents and trademarks.
Just-in-time method
Financing activities
Sales-type lease
Intangible assets
14. 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
Relative valuation models
Required rate of return
Semilogarithmic
Scenario analysis
15. The buyer of a derivative contract. Also refers to the position of owning a derivative.
Free cash flow to equity
Combination
Long
Futures contract
16. A swaption that allows the holder to enter into a swap as the fixed-rate receiver and floating-rate payer.
Outliers
Real risk-free interest rate
Receiver swaption
Aging schedule
17. Under IFRS - the liability of a defined benefit pension.
Segment turnover
Defined benefit obligation
Tobin's q
Mode
18. An offset to revenue reflecting any cash refunds - credits on account - and discounts from sales prices given to cus-tomers who purchased defective or unsatisfactory items.
Sales returns and allowances
Cost of debt
Mean
Fixed charge coverage
19. The costs of holding an asset - generally a function of the physical char-acteristics of the underlying asset.
Return on total capital
Storage costs or carrying costs
Historical exchange rates
Qualifying special purpose entities
20. A form of restructuring in which sharehold-ers of the parent company are given shares in a /Jewl y c eated entity in e~change for their shares of the pare ~ company.
Risk-neutral probabilities
Combination
Split-off
Sampling plan
21. A merger involving companies inthe same line of business - usually as competitors.
Terminal share price
Horizontal merger
Matrix pricing
Reverse stock split
22. The risk associated with interest rates - exchange rates - and equity prices.
Noncurrent assets
Break point
Market risk
Currency option
23. The amount of book value (also called carrying value) of common equity per share of common stock - calculated by dividing the book value of shareholders' equity by the num-ber of shares of common stock outstanding.
Time-weighted rate of return
Population variance
Book value equity per share
Operating cycle
24. The risk that a company will suffer an extended diminution in market value relative to other companies in the same industry due to a demonstrated lack of concern for environmental - social - and governance risk factors.
Financial distress
Reputational risk
Implied repo rate
Cumulative distribution function
25. An operating segment or one level below an operating segment (referred to as a component) .
Ordinary least squares (OLS)
Current cost
Reporting unit
Minority interest (noncontrolling interest)
26. Assets that are expected to be consumed or converted into cash in the near future - typically one year or less.
Entry price
Current assets - or liquid assets
Potential credit risk
Periodic rate
27. The estimated fair value of the price multiple - usually based on fore-casted fundamentals or comparables.
Discount for lack of control
In-process research and development
Holding period return
Justified price multiple (or warranted price multiple or intrinsic price multiple)
28. The risk of loss from failures in a company's systems and proce-dures (for example - due to computer failures or human failures) or events completely outside of the control of organizations (which would include 'acts of God' and terrorist actions) .
Method of comparables
Operations risk or operational risk
Binomial random variable
Market timing
29. A variation of VAR that reflects the risk of a company's cash flow instead of its market value.
Scatter plot
Cash flow at risk (CFAR)
North
Just-in-time method
30. Resolving differences in indications of value when estimating market value.
World Trade Organization
Implied volatility
Reconciliation
Interest rate forward
31. A financial instrument that gives one party the right - but not the obligation - to buy or sell an underlying asset from or to another party at a fixed price over a specific period of time. Also referred to as contingent claims.
Potential credit risk
Portfolio implementation problem
Traditional efficient markets formulation
Option
32. With respect to the format of a bal-ance sheet - a format in which assets - liabilities - and equity are listed in a single column.
Report format
Eurodollar
Historical cost
Aging schedule
33. A capital rationing environment assumes that the company has a fixed amount of funds to invest.
Capital rationing
Roy's safety first criterion
Rule of 72
Dividend payout policy
34. A reduction or discount to value for shares that are not publicly traded.
Level of significance
Annuity due
Marketability discount
Bond-equivalent yield
35. Analysts who work at brokerages.
Sell-side analysts
Flip-in pill
Time value or speculative value
Mean
36. The average squared deviation below the mean.
Semivariance
Losses
Subjective probability
Payout ratio
37. A theory of regulatory behavior that holds that regulators must take account of the demands of three groups: legislators - who established and oversee the regulatory agency; firms in the regulated industry; and consumers of the regulated indus-try's
Share-the-gains - share-the-pains theory
Real risk-free interest rate
Simple random sample
Pyramiding
38. The granting of stock options to employees as a form of compensation.
Payment netting
Goodwill
Stock options (stock option grants)
Due diligence
39. A bank commitment to extend credit up to a pre-specified amount; the commitment is considered a short-term liability and is usually in effect for 364 days (one day short of a full year).
Carrying amount (book value)
Sharpe's measure
Committed lines of credit
Active risk
40. Large industry groupings.
Discount
Economic sectors
Venture capital investors
Share-the-gains - share-the-pains theory
41. The minimum rate of return required by an investor to invest in an asset - given the asset's riskiness.
Initial margin requirement
Required rate of return
Bottom-up forecasting approach
Sell-side analysts
42. A statistical model used to clas-sifY borrowers according to creditworthiness.
Credit scoring model
Active investment managers
Net present value (NPV)
Merger
43. In using the method of com parables - the value of a price mul-tiple for the comparison asset; when we have com-parison assets (a group) - the mean or median value of the multiple for the group of assets.
Benchmark value of the multiple
Incremental cash flow
Price to cash flow
synunetric information
44. Method of accounting in which the effect of transactions on financial condition and income are recorded when they occur - not when they are settled in cash.
Orderly liquidation value
Accrual basis
Arithmetic mean
Linear interpolation
45. A synonym for robust standard errors.
Generalized least squares
Inverse price ratio
White-corrected standard errors
Capital budgeting
46. A swap in which the notional principal changes according to a for-mula related to changes in the underlying.
Corporation
Guideline public companies
Amortizing and accreting swaps
Receiver swaption
47. A public document that provides the material facts concerning matters on which shareholders will vote.
Cumulative distribution function
Proxy statement
Posterior probability
Holder-of-record date
48. An option in which the underlying is a bond; primarily traded in over-the-counter markets.
Mixed factor models
Bond option
Backtesting
Measure of location
49. A multifactor model In which statistical methods are applied to a set of historical returns to determine portfolios that best explain either historical return covariances or vanances.
Classical growth theory
Discount rate
Duration
Statistical factor models
50. The difference between the market price of the option and its intrinsic value - determined by the uncertainty of the underlying over the remaining life of the option.
Sole proprietorship
Time value or speculative value
Equitizing cash
Adjusted beta
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