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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. The present discounted value of future cash flows: For assets - the present dis-counted value of the future net cash inflows that the asset is expected to generate; for liabilities - the present discounted value of the future net cash outflows that a
Present value (PV)
Credit
Current taxes payable
Tree diagram
2. The periodic investment of a fixed amount of money.
P Value
Grouping by nature
Cost averaging
Active investment managers
3. A forward contract in which the underlying is a bond.
Fixed-income forward
Forward contract
Benchmark value of the multiple
Floorlet
4. The contri-bution to active risk squared resulting from the portfolio's active weights on individual assets as those weights interact with assets' residual risk.
Active specific risk or asset selection risk
Time series
Cost of debt
Daily settlement
5. The risk that govern-mental laws and regulations directly or indirectly affecting a company's operations will change with potentially severe adverse effects on the com-pany's continued profitabiliny and even its long-term sustainability.
Legislative and regulatory risk
Bootstrapping earnings
Identifiable intangible
Income statement (statement of operations or profit and loss statement)
6. The process of obtaining a sample.
Sampling
Corporate governance
Netting
Purchase method
7. Options that - if exercised - would result in the value received being worth more than the payment required to exercise.
In-the-money
Other post-employment benefits
Top-down forecasting approach
Shortfall risk
8. The income tax owed by the company on the basis of taxable income.
Capital asset pricing model (CAPM)
Probability function
Income tax payable
Tenor
9. The positive square root of semivari-ance (sometimes called semistandard deviation) .
Direct sales-comparison approach
Performance measurement
Hypothesis testing
Semideviation
10. A weighted average of the after-tax required rates of return on a company's common stock - preferred stock - and long-term debt - where the weights are the fraction of each source of financing in the company's target capital structure.
Weighted-average cost of capital (WACC)
Floor traders or locals
Current taxes payable
Fiduciary call
11. A swap in which the floating payments have a lower limit.
Unconditional probability (or marginal probability)
Solvency
Structured note
Floored swap
12. A form ofcommon-size analysis in which the accounts in agiven period are used as the benchmark or baseperiod - and every account is restated in subse-quent periods as a percentage of the base period'ssame account.
Horizontal common-size analysis
Cash flow additivity principle
Treasury stock method
Underlying earnings (or persistent earnings - continu-ing earnings - or core earnings)
13. With reference to statistical infer-ence - the subdivision dealing with the testing ofhypotheses about one or more populations.
Chart of accounts
Linear interpolation
Centralization permits economies of scale and allows a company to use some of its risks to offset other risks.
Hypothesis testing
14. A standardized measure of systematic risk based upon an asset's covariance with the market portfolio.
Statutory merger
Beta
Continuous time
Portfolio performance attribution
15. An option strategy that is equiva-lent to a short butterfly spread.
Random number generator
Installment
Sandwich spread
Trust receipt arrangement
16. A model of stock val-uation that views a stock's intrinsic value as the present value of expected future free cash flows to equity.
Dealing securities
American option
Leading dividend yield
Free cash flow to equity model
17. 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.
In-the-money
Dirty surplus accounting
Payment date
Equity swap
18. A two-dimensional plot of pairs of obser-vations on two data series.
Market risk
Asian call option
Bottom-up analysis
Scatter plot
19. The estimated cost of equity capital in money terms.
Equity charge
Coefficient of variation (CV)
Continuous random variable
Total return swap
20. A solvency ratio calculated as total debt divided by total shareholders' equity.
Manufacturing resource planning (MRP)
Debt-to-equity ratio
Holding period return
Backward integration
21. The proportional annual benefit that results from making an investment.
Asset beta
London Interbank Offer Rate (LIBOR)
Panel data
Rate of return
22. Any action other than a tariff that restricts international trade.
Unidentifiable intangible
Sector neutralizing
Exposure to foreign exchange risk
Nontariff barrier
23. The observation that P /Es tend to be high on depressed EPS at the bottom of a business cycle - and tend to be low on unusually high EPS at the top of a business cycle.
Settlement risk
Income tax recoverable
Molodovsky effect
Double-entry accounting
24. The relationship between the price of the underlying and an option's exercise price.
Moneyness
Quick assets
Balance of payments accounts
Cumulative distribution function
25. American Free Trade Agreement An agree-ment - which became effective on January 1 - 1994 - to eliminate all barriers to international trade between the United States - Canada - and Mexico after a 15-year phasing-in period.
Hypothesis testing
Liquidity ratios
Mean absolute deviation
North
26. An option strategy in which a position in an asset is converted to a risk-free position with a position in a specific number of options. The number of options per unit of the underlying changes through time - and the position must be revised to maint
Bond-equivalent basis
Mean-variance analysis
Net book value
Delta hedge
27. The risk associated with the pos-sibility that a payment currently due will not be made.
Designated fair value instruments
Asian call option
Ratio scales
Current credit risk
28. A probability distribution that specifies the probabilities for a group of related random variables.
Minority interest (noncontrolling interest)
Multivariate distribution
Benchmark
Monitoring costs
29. A portfolio with sensitivity of 1to the factor in question and a sensitivity of 0 to allother factors.
Agency costs
Pure factor portfolio
Special purpose entity (special purpose vehicle or variable interest entity)
Platykurtic
30. The probability of a Type I error in testing a hypothesis.
Passive portfolio
Semideviation
Level of significance
Exports
31. Individuals or companies b hat execute fu tures transactions for other parties off the exchange.
Forward rate agreement (FRA)
Reporting unit
Empirical probability
Futures commission merchants (FCMs)
32. In accounting - a liability of uncertain tim-ing or amount.
Complement
Purchase method
Provision
Sampling error
33. A diagram with branches emanating from nodes representing either mutually exclu-sive chance events or mutually exclusive decisions.
Probability function
Electronic funds transfer
Discount rate
Tree diagram
34. An acceler-ated depreciation method that involves depreciat-ing the asset at double the straight-line rate. This rate is multiplied by the book value of the asset at the beginning of the period (a declining balance) to calculate depreciation expense.
Double declining balance depreciation
Equity dividend rate
Paired observations
Yield
35. The risk associated with operating earnings. Operating earnings are uncertain because total revenues and many of the expendi-tures contributed to produce those revenues are uncertain.
Constant maturity treasury or
Up transition probability
Forward contract
Business risk
36. For data grouped into intervals - the fraction of total observations that are less than the value of the upper limit of a stated interval.
Partial regression coefficients or partial slope coeffi-cients
Yield to maturity
Delta-normal method
Cumulative relative frequency
37. In reference to short-term cash man-agement - an investment strategy characterized by monitoring and attempting to capitalize on mar-ket conditions to optimize the risk and return relationship of short-term investments.
Investment objectives
Active strategy
Return on equity (ROE)
Upstream
38. An option on the yield spread on a bond.
Sales
Unearned fees
Debt ratings
Credit spread option
39. An approach to managing inve tory based on expected demand and the predictability of demand; the ordering point for new inventory is determined based on the costs of ordering and carrying inventory - such that the total cost associated with inventory
Price momentum
Economic order quantity-reorder point
Nominal exchange rate
No-growth company
40. An extra return that compen-sates investors for expected inflation.
Market rate
Growth option or expansion option
Stress testing
Inflation premium
41. A quantity - calculated based on a sam-ple - whose value is the basis for deciding whether or not to reject the null hypothesis.
Cash settlement
Test statistic
Vertical analysis
Discrintinant analysis
42. Regulation that allowsprices to reflect only the actual average cost ofproduction and no monopoly profits.
Book value of equity (or book value)
Scatter plot
Cost-of-service regulation
Collar
43. The risk associated with the conversion of foreign financial statements into domestic currency.
Price-setting option
Equity dividend rate
Put-call-forward parity
Translation exposure
44. The prooability of an observation - given a par ticular set of conditions.
Likelibood
Leading dividend yield
Company share-related factors
Weighted-average cost of capital (WACC)
45. P/E calculated on the basis of a forecast of EPS; a stock's current price divided by next year's expected earnings.
Deductible temporary differences
Forward P/E (also leading P/E or prospective P/E)
Synthetic put
Standard normal distribution (or unit normal distribu-tion)
46. A test of a strategy or model using a sample outside the time period on which the strategy or model was developed.
Out-of-sample test
Entry price
Lemons problem
Legislative and regulatory risk
47. A quantitative measure that describes the location or distribution of data; includes not only measures of central tendency but also other measures such as percentiles.
Accounts payable
Functional currency
Segment margin
Measure of location
48. Any outcome or specified set of outcomes of a random variable.
Price multiple
Segment debt ratio
Event
Joint venture
49. A valuation ratio calculated as price per share divided by cash flow per share.
Sampling distribution
Commodity swap
Stated rate (nominal rate or coupon rate)
Price to cash flow
50. A variation of the monetary/ nonmonetary translation method that requires not only monetary assets and liabilities - but also nonmonetary assets and liabilities that are mea-sured at their current value on the balance sheet date to be translated at t
Temporal method
Market price of risk
Economic profit
Cost recovery method
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