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Test your basic knowledge |
CFA Level2 Vocab
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Study First
Subjects
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certifications
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cfa
Instructions:
Answer 50 questions in 15 minutes.
If you are not ready to take this test, you can
study here
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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. Netting the market values of all contracts - not just derivatives - between parties.
Cost of carry model
Book value equity per share
Expiration date
Cross-product netting
2. 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.
Cash equivalents
Conditional variances
Exercise date
Money market yield (or CD equivalent yield
3. 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
Futures contract
Covered call
Convenience yield
Reviewed fmancial statements
4. A company that has similar business risk; usually in the same industry and preferably with a single line of business.
Trading securities (held-for-trading securities)
Outliers
omparable company
Liruit move
5. The analysis of the total variability of a dataset (such as observations on the dependent variable in a regression) into components representing different sources of variation; with reference to regression - ANOVA provides the inputs for an F-test of
Degree of operating leverage (DOL)
Forward P/E (also leading P/E or prospective P/E)
Analysis of variance (ANOVA)
Out-of-the-money
6. An estimate of the average time that elapses between paying suppliers for materi-als and collecting cash from the subsequent sale of goods produced.
Acquisition
Asset-based valuation
Net operating cycle
Theory of contestable markets
7. 1) A contract on an interest rate - whereby at periodic payment dates - the writer of the cap pays the difference between the market interest rate and a specified cap rate if - and only if - this differ-ence is positive. This is equivalent to a strea
Days of inventory on hand (DOH)
Company fundamental factors
Dirty surplus items
Cap
8. The margin requirementon the first day of a transaction as well as on anyday in which additional margin funds must be deposited.
Initial margin requirement
Cost of equity
Brokerage
Income approach
9. Investigation and analysis in support of a recommendation; the failure to exercise due diligence may sometimes result in liability accord-ing to various securities laws.
Due diligence
Liruit down
Capture hypothesis
Drag on li
10. An equation expressing the equiva-lence (parity) of a portfolio of a call and a bondwith a portfolio of a put and the underlying -which leads to the relationship between put andcall prices
Horizontal merger
Equilibrium
Cross-product netting
Put-call parity
11. The absorption of one company by another; two companies become one entity and one or both of the pre-merger companies ceases to exist as a separate entity.
Histogram
Minimum-variance frontier
Merger
Capitalized inventory costs
12. A contract calling for the purchase of an individual stock - a stock portfolio - or a stock index at a later date at an agreed-upon price.
Equity forward
Venture capital investors
American option
One-sided hypothesis test (or one-tailed hypothesis test)
13. Any departure of the market price of an asset from the asset's estimated intrinsic value.
Greenmail
Mispricing
Holding period return
Accounting risk
14. Essentially - the pur-chase of some asset by the buyer (lessee) that is directly financed by the seller (lessor).
Ordinary shares (common stock or common shares)
Finance lease (capital lease)
Official settlements account
Mesokurtic
15. An accelerated depre-ciation method - i.e. - one that allocates a relativelylarge proportion of the cost of an asset to the early years of the asset's useful life.
Contingent consideration
Diminishing balance method
Lower bound
Company fundamental factors
16. The error of not rejecting a false null hypothesis.
Enterprise value (EV)
Dividends per share
Type II error
Long-term liability
17. A capital rationing environment assumes that the company has a fixed amount of funds to invest.
Capital rationing
Null hypothesis
Absolute valuation model
Balance of payments accounts
18. A function with non-negative values such that probability can be described by areas under the curve graphing the function.
Current credit risk
Probability density function
Residual claim
Covariance
19. A number between 0 and 1 describing the chance that a stated event will occur.
Sole proprietorship
Probability
Mismatching strategy
Management buyout (MBO)
20. A liquidity ratio calculated as current assets divided by current liabilities.
Cumulative distribution function
Breakeven point
Current ratio
Performance guarantee
21. To defer the decision to invest in a future projecn until the outcome of some or all of a current project is known. -Projects are sequenced through time - so that investing iN a project creates the option to invest in future projects.
Project sequencing
White sqnire
Portfolio possibilities curve
Lack of marketability discount
22. The yield to maturity on a basis that ignores compounding.
Bond-equivalent yield
Exposure to foreign exchange risk
Modal interval
Pairs trading
23. A forecasting approach that involves aggregating the individual company forecasts of analysts into industry fore-casts - and finally into macroeconomic forecasts.
Bottom-up forecasting approach
Deep out of the money
Cash o£ fering
Perfect collinearity
24. The rule that the joint probability of events A and B equals the probability of A given B times the probability of B.
Current ratio
Multiplication rule for probabilities
Segment debt ratio
Net liability balance sheet exposure
25. The probability of an event estimated as a relative frequency of occurrence.
Rejection point (or critical value)
Active specific risk or asset selection risk
Empirical probability
Heteroskedasticity
26. An extra return to investors to compensate for lack of a public mar-ket or lack of marketability.
Justified price multiple (or warranted price multiple or intrinsic price multiple)
Lack of marketability discount
Bond option
Implied yield
27. A sample measure of the degree of a distribution's peakedness.
Active portfolio
Mature growth rate
Beta
Sample kurtosis
28. The sum of the real risk-free interest rate and the inflation premium.
Nominal risk-free interest rate
Collar
Method based on forecasted fundamentals
Delivery
29. With reference to the cash flow statement - a format for the presentation of the statement in which cash flow from operat-ing activities is shown as operating cash receipts less operating cash disburseme ts.
Forward rate agreement (FRA)
Balance of payments accounts
Direct format (direct method)
Cash
30. The cost to a com pany of issu-ing preferred stock; the dividend yield that a com-pany must commit to pay preferred stockholders.
Dutch Book theorem
Cost of preferred stock
Interest rate option
Nonmonetary assets and liabilities
31. An amount equal to saving minus investment.
Model risk
Private sector surplus or deficit
Capitalized cash flow model (method)
Parameter
32. Net earnings avail-able to common shareholders (i.e. - net income minus preferred dividends) divided by the weighted average number of common shares out-standing during the period.
Basic earnings per share (EPS)
Compounding
Other post-employment benefits
Spurious correlation
33. The amount by which the takeover price for each share of stock must exceed the current stock price in order to entice shareholders to relinquish control of the com-pany to an acquirer.
Tax base (tax basis)
Takeover premium
J oint probability function
Face value (also principal - par value - stated value - or maturity value)
34. A country that is lending more to the rest of the world than it is borrowing from it.
Regime
Systematic sampling
Net lender
Basic earnings per share (EPS)
35. (No longer allowed under U.S. GAAP or IFRS.)
Credit analysis
U.S. GAAP and uniting of interests under IFRS
Regression coefficients
Quota
36. With reference to fundamental factor models - the value of the attribute for an asset minus the average value of the attribute across all stocks - divided by the standard deviation of the attribute across all stocks.
Standardized beta
Provision
Trade-weighted index
Equilibrium
37. The capital structure at which the value of the company is maximized.
Optimal capital structure
Foreign exchange market
Event
Investment constraints
38. The party obtaining the use of an asset through a lease.
Credit VAR - default VAR - or credit at risk
Posterior probability
Transactions motive
Lessee
39. Under U.S. GAAP - a measure used in estimating a defined-benefit pen-sion plan's liabilities - defined as 'the actuarial present value as of a date of all benefits attributed by the pension benefit formula to employee ser-vice rendered prior to that
Semideviation
Controlling interest
Projected benefit obligation
Partial regression coefficients or partial slope coeffi-cients
40. A distribution that specifies the probabilities of a random variable's possible outcomes.
Probability distribution
Retail method
Fair market value
Takeover premium
41. The contribution to active risk squared resulting from the portfolio's different-than-benchmark exposures relative to factors specified in the risk model.
Dispersion
Return on total capital
Factor
Active factor risk
42. Small numbers of observations at either extreme (small or large) ofa sample.
Historical method
Yield to maturity
Break point
Outliers
43. Controlling additional property throughreinvestment - refinancing - and exchanging.
Investment strategy
Risk management
Pyramiding
Cheapest to deliver
44. The evaluation of risk-adjusted performance; the evaluation of invest-ment skill.
Active investment managers
Performance appraisal
Credit analysis
Balance-sheet-based accruals ratio
45. A statistical test for differ-ences based on paired observations drawn from samples that are dependent on each other.
Alternative hypothesis
Futures contract
Paired comparisons test
Completed contract
46. An intangible that can beacquired singly and is typically linked to specificrights or privileges having finite benefit periods(e.g. - a patent or trademark).
Matching principle
Tracking error
Identifiable intangible
Sample variance
47. A continuous - symmetric prob-ability distribution that is completely described by its mean and its variance.
Normal distribution
Annuity
Hostile transaction
Mixed offering
48. A solvency ratio calculated as total debt divided by total shareholders' equity.
Multivariate normal distribution
Debt-to-equity ratio
Two-sided hypothesis test (or two-tailed hypothesis test)
Classical growth theory
49. The rate at which periodic interest payments are calculated.
Just-in-time method
Economic growth rate
Stated rate (nominal rate or coupon rate)
Net present value (NPV)
50. Regulation that allowsprices to reflect only the actual average cost ofproduction and no monopoly profits.
Unearned fees
Opportunity cost
Probability density function
Cost-of-service regulation