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CFA Level2 Vocab

Subjects : certifications, cfa
Instructions:
  • Answer 50 questions in 15 minutes.
  • If you are not ready to take this test, you can study here.
  • Match each statement with the correct term.
  • Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.

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. The effect of an investment on other things besides the investment itself.






2. The variance of one variable - given the outcome of another.






3. The combination of puts - the underly-ing - and risk-free bonds that replicates a call option.






4. A profitability ratio calcu-lated as net income divided by average sharehold-ers' equity.






5. The differential of infor-mation between corporate insiders and outsiders regarding the company's performance and prospects. Managers typically have more informa-tion about the company's performance and prospects than owners and creditors.






6. Common sharehold-ers' equity minus intangible assets from the bal-ance sheet - divided by the number of shares outstanding.






7. Costs borne by owners to moni tor the management of the company (e.g. - board of director expenses).






8. An approach to investment analysis and security selection.






9. An extra return that compen-sates investors for the risk of loss relative to an investment's fair value if the investment needs to be converted to cash quickly.






10. The estimated cost of equity capital in money terms.






11. Observations that are depen-dent on each other.






12. A loss in value caused bychanges in price levels. Monetary assets experi-ence purchasing power losses during periods ofinflation.






13. A liquidi ty ratio calculated as (cash + short-term marketable investments) divided by current liabilities; measures a company's ability to meet its current obligations with just the cash and cash equivalents on hand.






14. Options that are far in-the-money.






15. Options that are far out-of-the-money.






16. A forecasting approach that involves aggregating the individual company forecasts of analysts into industry fore-casts - and finally into macroeconomic forecasts.






17. Temporary differ-ences that result in a red uction of or deduction from taxal:J e income in a future period when the balance sheet item is n~ covered or settled.






18. The unlevered beta; reflects the business risk of the assets; the asset's systematic risk.






19. A solvency ratio measuring the number of times interest and lease payments are covered by operating income - calculated as (EBIT + lease payments) divided by (interest payments + lease payments).






20. 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.






21. The divisor in the expression for the value of a perpetuity.






22. An investment where the investor exerts control over the investee - typically by having a greater than 50 percent ownership in the investee.






23. Assets and liabilities with value equal to the amount of currency con-tracted for - a fixed amount of currency. Examples are cash - accounts receivable - mortgages receiv-able - accounts payable - bonds payable - and mort-gages payable. Inventory is






24. A theory pertaining to a company's optimal capital struc-ture; the optimal level of debt is found at the point where additional debt would cause the costs of financial distress to increase by a greater amount than the benefit of the additional tax sh






25. A variation of a forward contract that has essentially the same basic definition but with some additional features - such as a clearing-house guarantee against credit losses - a daily settlement of gains and losses - and an organized electronic or fl






26. A function with non-negative values such that probability can be described by areas under the curve graphing the function.






27. A merger in which the company being purchased becomes a subsidiary of the purchaser.






28. A function giving the probability that a random variable is less than or equal to a specified value.






29. The difference between the fixed rate on an interest rate swap and the rate on a Trea-sury note with equivalent maturity; it reflects the general level of credit risk in the market.






30. Equity shares that are subordinate to all other types of. equity (e.g. - p refe rred equi ty) .






31. A series of call options on an interest rate - with each option expiring at the date on which the floating loan rate will be reset - and with each option having the same exercise rate. A cap in general can have an underlying other than an interest ra






32. An extra return that compen-sates investors for the possibility that the borrower will fail to make a promised payment at the con-tracted time and in the contracted amount.






33. The positive square root of the variance; a measure of dispersion in the same units as the original data.






34. The tendency for the winner in cer-tain competitive bidding situations to overpay - whether because of overestimation of intrinsic value - emotion - or information asymmetries.

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35. For accounting purposes - the exchange rates that existed when the assets and liabilities were initially recorded.






36. An investment strategy in which an investor constructs a portfolio to mirror the per-formance of a specified index.






37. A depreciation method tHat allocates the cost of a long-lived asset based on-actual usage during the period .






38. With respect to double-entry accounting - a debit records increases of asset and expense accounts or decreases in liability and owners' equity accounts.






39. A ratio in property valua-tion; net operating income divided by sale price. Also known as the going-in rate.






40. An active investment strategy that includes intentional matching of the timing of cash outflows with investment maturities.






41. A profitability ratio calcu-lated as net income divided by average total assets; indicates a company's net profit generated per dollar invested in total assets.






42. The normal density with mean equal to 0 and standard deviation (0') equal to l.






43. A forecasting process in which the next period's value as predicted by the forecasting equation is substituted into the right-hand side of the equation to give a predicted value two periods ahead.






44. With respect to inventory accounting - the planned or target unit cost of inventory items or services.






45. Weights that are used to compute a binomial option price. They are the probabilities that would apply if a risk-neutral investor valued an option.






46. The difference between the yield on a bond and the yield on a default-free security - usu-ally a government note - of the same maturity. The yield spread is primarily determined by the mar-ket's perception of the credit risk on the bond.






47. 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






48. The cash flow available to a company's common shareholders after all operat-ing expenses - interest - and principal payments have been made - and necessary investments in working and fixed capital have been made.






49. The dollar amount of cash divi-dends paid during a period per share of common stock.






50. Taken as a deduction in arriving at net income.