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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. Costs of research and development in progress atan acquired company; often - part of the purchaseprice of an acquired company is allocated to suchcosts.
ecurity market line (SML)
Tax expense
Purchased in-process research and development costs
Solvency ratios
2. The particular value calculated from sam-ple observations using an estimator.
Fair value
Median
Estimate
Minimum-variance frontier
3. A time series regressed on its own past values - in which the independent vari-able is a lagged value of the dependent variable.
Current assets - or liquid assets
Plain vanilla swap
Net operating assets
Autoregressive (AR) model
4. The extent to which a company can effect - through the use of debt - a propor-tional change in the re turn on common equity that is greater than a given proportional change in operating income; also - short for the financial leverage ratio.
Credit derivatives
Financial leverage
Liabilities
Replacement value
5. Any departure of the market price of an asset from the asset's estimated intrinsic value.
First-order serial correlation
Mispricing
Out-of-sample forecast errors
Valuation allowance
6. Depreciatiolil methods that allocate a relatively large proportion of the cost of an asset to the early years of the asset's useful life.
Simple random sampling
Breusch-Pagan test
Accelerated methods of depreciation
Off-balance sheet imancing
7. An agreement allowing the lessee to use some asset for a period of time; essentially a rental.
Amortization
Current account
Operating lease
Sampling plan
8. A record of foreign investment in a country minus its investment abroad.
Cost averaging
Exchange ratio
Intangible assets
Capital account
9. An option to enter into a swap.
Definitive merger agreement
Investment strategy
Swaption
Alpha (or abnormal return)
10. 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
Cost-of-service regulation
Clientele effect
Lockbox system
Block
11. The ratio of a stock's market price to some m asure of va ue per share.
Capture hypothesis
Floor traders or locals
Price multiple
Flotation cost
12. The first date that a share trades without (i.e. - 'ex') the dividend.
Ex-dividend date
Segment margin
Fixed-rate perpetual preferred stock
Interval
13. Is Derivatives in which the payoffs occur if a specific event occurs; generally referred to as options.
Tangible book value per share
Target balance
Terms of trade
Contingent clain
14. A measurement scale that not only ranks data but also gives assurance that the differ-ences between scale values are equal.
Receiver swaption
Unconditional heteroskedasticity
Interval scale
Private sector surplus or deficit
15. A model that specifies an asset's intrinsic value.
Absolute valuation model
Portfolio implementation problem
Clean surplus relation
Prior probabilities
16. Costs borne by owners to moni tor the management of the company (e.g. - board of director expenses).
Financial distress
Standard normal distribution (or unit normal distribu-tion)
Hypothesis testing
Monitoring costs
17. The difference between revenue and expenses; what remains after subtracting all expenses (including depreciation - interest - and taxes) from revenue.
Broker
Net income (loss)
Weighted harmonic mean
Simulation trial
18. The period benefited~y the employee's service - usually th e period between the grant date and the vesting date.
Monopolization
Going-concern value
Unlimited funds
Service period
19. A market index portfolio.
Passive portfolio
Credit scoring model
Rule of 70
Breakeven point
20. For data grouped into intervals - the fraction of total observations that are less than the value of the upper limit of a stated interval.
Cumulative relative frequency
Likelibood
Chain rule of forecasting
Subjective probability
21. Serial correlation in which a positive error for one observation increases the chance of a positive error for another observation - and a negative error for one observation increases the chance of a negative error for another observation.
Nonearning assets
Quota
Positive serial correlation
Regulatory risk
22. A conventional cash flow pattern is one with an ini tial outflow followed by a series of in ows.
Parametric test
Partnership
Conventional cash flow
NTM P/E
23. A statistical model used to clas-sifY borrowers according to creditworthiness.
Management buyout (MBO)
Solvency
Cost of debt
Credit scoring model
24. A measure of an option-free bond's aver-age maturity. Specifically - the weighted average maturity of all future cash flows paid by a security - in which the weights are the present value of these cash flows as a fraction of the bond's price. A measu
Creditworthiness
Single-payment loan
Duration
Unbiasedness
25. A value against which a computed test statistic is compared to decide whether to reject or not reject the null hypothesis.
Matrix pricing
Probit model
Bond-equivalent yield
Rejection point (or critical value)
26. With reference to assets - the amount of cash or cash equivalents that would have to be paid to buy the same or an equivalent asset today; with reference to liabilities - the un discounted amount of cash or cash equivalents that would be required to
Divestiture
Current cost
Exports
Monopolization
27. The granting of stock options to employees as a form of compensation.
Differential expectations
Portfolio performance attribution
Stock options (stock option grants)
Reverse stock split
28. A subset of a larger popula-tion created in such a way that each element of the population has an equal probability of being selected to the subset.
Butterfly spread
Gross profit (gross margin)
Simple random sample
Exp ected holding-period return
29. An inter-national agreement signed in 1947 to reduce tar-iffs on international trade.
General Agreement on Tariffs and Trade
Cost recovery method
Range
Expensed
30. A purchase involving a buyer that would benefit from certain synergies associ-ated with owning the target firm.
Strategic transaction
Independent and identically distributed (l
NTM P/E
Bond-equivalent basis
31. Linear regression involv-ing two or more independent variables.
Cumulative distribution function
Multiple linear regression
Number of days of receivables
Exhaustive
32. With reference to the error term of a regression - having a variance that differs across observations.
Grouping by function
Orthogonal
Earnings per share
Heteroskedastic
33. A method for updating probabilities based on new information.
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34. A solvency ratio calculated as total debt divided by total shareholders' equity.
Financial leverage ratio
Debt-to-equity ratio
Vertical analysis
Units-of-production method
35. The rate of return from a cash-and-carry transaction implied by the futures price relative to the spot price.
Momentum indicators
Implied repo rate
Measure of central tendency
Active factor risk
36. A trader who typically holds posi-tions open overnight.
Fair value
Pull on liquidity
Position trader
Income approach
37. An approach to portfolio analysis using expected means - variances - and covariances of asset returns.
Legal risk
Scalper
Mean-variance analysis
Legislative and regulatory risk
38. Managers who hold portfolios that differ from their benchmark port-folio in an attempt to produce positive risk-adjusted returns.
Active investment managers
Cost of capital
Dynamic hedging
Minority passive investments (passive investments)
39. The price multiple for a stock assumed to hold at a stated future time.
Type I error
Terminal price multiple
Survey approach
Indirect format (indirect method)
40. An Activity ratio calculated as total revenue divided by average net fixed assets.
Fixed asset turnover
Accrual basis
Price limits
Linear interpolation
41. All changes in equity other than contributions by - and distributions to - own-ers; income under clean surplus accounting; includes all changes in equity during a period except those resulting from investments by own-ers and distributions to owners;
Current credit risk
Infant-industry argument
Comprehensive income
Held-for-trading securities (trading securities)
42. A breakdown of accounts into cate-gories of days outstanding.
Logit model
Factor risk premium (or factor price)
Equity risk premium
Aging schedule
43. EPS) Netincome - minus preferred dividends - divided bythe number of common shares outstanding con-sidering all dilutive securities (e.g. - convertibledebt and options); the EPS that would result if alldilutive securities were converted into commonsh
Gross income multiplier (GIM)
Growth accounting
Robust standard errors
Diluted earnings per share (diluted
44. Valuation approach that values an asset as the present discounted value of the income expected from it.
Conversion factor
Income approach
Target balance
Taxable income
45. Assets that are expected to provide economic benefits over a future period of time - typically greater than one year.
Long-lived assets (or long-term assets)
Standardized beta
Variance
Law of one price
46. Deliberate activity aimed at influencing reporting earnings numbers - often with the goal of placing management in a favorable light; the opportunistic use of accruals to manage earnings.
Diminishing balance method
Agency relationships
Earnings management activity
Exercise rate or strike rate
47. A distribution that specifies the probabilities for a single random variable.
Taxable income
Day trader
Univariate distribution
Variance
48. 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
Bottom-up analysis
J oint probability function
Bernoulli random variable
Mode
49. Uncorrelated; at a right angle.
Orthogonal
Expected value
Weighted mean
Discount rate
50. Revenue after adjustments (e.g. - for estimated returns or for amounts unlikely to be collected).
Benchmark
Net revenue
Growth accounting
Mean reversion
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