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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. Degree of peakedness (fatness of tails) in excess of the peakedness of the normal distribution.
Fixed-income forward
Direct format (direct method)
Transaction exposure
Excess kurtosis
2. An Activity ratio calculated as total revenue divided by average net fixed assets.
Target payout ratio
Efficient portfolio
Fixed asset turnover
Real GDP per person
3. The number of indepen-dent observations used.
Fundamentals
Degrees of freedom (df)
Sample
Quantile (or fractile)
4. The average return in excess of the risk-free rate divided by the standard deviation of return; a measure of the average excess return earned per unit of standard deviation of return.
Chart of accounts
Normal contango
Operating lease
Sharpe ratio
5. 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.
Operating return on assets (operating
Probability
Sensitivity analysis
Yield spread
6. A gain in value caused bychanges in price levels. Monetary liabilities expe-rience purchasing power gains during periods ofinflation.
Purchasing power gain
Liruit move
Assets
Debt ratings
7. The difference between revenue and expenses; what remains after subtracting all expenses (including depreciation - interest - and taxes) from revenue.
Economic growth
Net income (loss)
Interest rate forward
Single-payment loan
8. Said of a por tfolio for which eco-nomic sectors are represented in the same pro-portions as in the benchmark - using market-value weights.
Hedge ratio
Return on total capital
Sector neutral
Debit
9. A quantity - calculated based on a sam-ple - whose value is the basis for deciding whether or not to reject the null hypothesis.
Test statistic
Clientele effect
Mutually exclusive events
Unexpected earnings (also earnings surprise)
10. 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
Mutually exclusive projects
Translation exposure
Dividend payout ratio
Static trade-off theory of capital structure
11. Activities related to obtaining or repaying capital to be used in the business (e.g. - equity and long-term debt).
Financing activities
Fundamental factor models
Assets
Short
12. A dividend yield based on the anticipated dividend during the next 12 months.
Number of days of payables
Optimal capital structure
Forward dividend yield
Sample statistic or statistic
13. A common or underlying element with which several variables are correlated.
Tariff
Independent and identically distributed (l
Factor
Internal rate of return (IRR)
14. The square root of the average squared forecast error; used to compare the out-of-sample forecasting perfor-mance of forecasting models.
Hmnan capital
Root mean square(l er ror (RMSE)
Blockage factor
Continuous time
15. A time series regressed on its own past values - in which the independent vari-able is a lagged value of the dependent variable.
Price multiple
Nominal risk-free interest rate
Direct write-off method
Autoregressive (AR) model
16. A stage of growth in which the com-pany reaches an equilibrium in which investment opportunities on average just earn their opportu-nity cost of capital.
Mature phase
Fiduciary call
Mutually exclusive projects
Transactions motive
17. The sum of the real risk-free interest rate and the inflation premium.
Nominal risk-free interest rate
Financial reporting quality
Residual claim
Regulatory risk
18. An activity ratio calculated as revenue divided by average total assets.
Total asset turnover
Amortizing and accreting swaps
Subjective probability
Risk governance
19. A matrix or square array whoseentries are covariances; also known as a variance-covariance matrix.
Financial reporting quality
Covariance matrix
Portfolio selection/composition problem
Instability in the minimum-variance frontier
20. A financial covenant made in conjunction with existing debt that restricts a company's ability to incur additional debt at the same seniority based on one or more financial tests or conditions.
Interquartile range
Debt incurrence test
Qualitative dependent variables
Active specific risk or asset selection risk
21. The pro-portion of the ownership of a subsidiary not held by the parent (controlling) company.
Minority interest (noncontrolling interest)
Sharpe's measure
Underlying earnings (or persistent earnings - continu-ing earnings - or core earnings)
Error autocorrelation
22. A measure of the co-movement (linearassociation) between two random variables.
Continuing residual income
Efficiency
Efficient frontier
Covariance
23. A public document that provides the material facts concerning matters on which shareholders will vote.
Mark-ta-market
IRR rule
Delivery
Proxy statement
24. The period benefited~y the employee's service - usually th e period between the grant date and the vesting date.
Estimator
Multiplication rule for probabilities
Service period
Marking to market
25. Small numbers of observations at either extreme (small or large) ofa sample.
Outliers
Stock grants
Total invested capital
Seats
26. The hypothesis accepted when the null hypothesis is rejected.
Target payout ratio
U.S. official reserves
Alternative hypothesis
Mutually exclusive projects
27. A solvency ratio calculated as total debt divided by total shareholders' equity.
Linear regression
Debt-to-equity ratio
Stated rate (nominal rate or coupon rate)
Equity method
28. The evaluation of risk-adjusted performance; the evaluation of invest-ment skill.
U.S. interest rate differential
Performance appraisal
Settlement risk
Percentiles
29. A time series in which the value ofthe series in one period is the value of the series in the previous period plus an unpredictable random error.
Long-term debt-ta-assets ratio
Random walk
Total return swap
Relative dispersion
30. Mean active return divided by active risk; or alpha divided by the standarddeviation of diversifiable risk.
Owners' equity
Simple random sampling
Information ratio (IR)
Premise of value
31. Huidity When receipts lag - creating pres-sure fmm the decreased available funds.
Sample variance
Book value of equity (or book value)
Tangible assets
Drag on li
32. The line with an inter-cept point equal to the risk-free rate that is tangent to the efficient frontier of risky assets; represents the efficient frontier when a risk-free asset is available for investment.
Mismatching strategy
Capital market line (CML)
Degree of total leverage
Current ratio
33. The sensitivity of the option price to the risk-free rate.
Active risk squared
Cost of capital
Rho
Guideline public companies
34. A reduction in the number of shares outstanding with a corresponding increase in share price - but no change to the company's underlying fundamentals.
Instability in the minimum-variance frontier
Prior transaction method
Reverse stock split
Stratified random sampling
35. A merger involving companies inthe same line of business - usually as competitors.
Horizontal merger
Credit derivatives
Pure-play method
Realizable value (settlement value)
36. Describes a time series whenits expected value and variance are cons tan t andfinite in all periods and when its covariance withitself for a fixed number of periods in the past orfuture is constant and finite in all periods.
Covariance stationary
Vertical merger
Population mean
Inverse price ratio
37. The difference between the maximum and minimum values in a dataset.
Active portfolio
Price to sales
Synthetic call
Range
38. Factor models that combine features of more than one type of factor model.
Statistical inference
Project sequencing
Mixed factor models
Independent
39. The price at which an asset or liability would change hands between a willing buyer and a willing seller whe n the former is not under any compulsion to buy and the latter is not under any compulsion to sell; the price that would be received to sell
Fair value
Labor productivity
Interest rate forward
Horizontal analysis
40. The condition in which supply equals demand.
Equilibrium
Active risk
Statement of changes in shareholders' equity (state-ment of owners' equity)
Time-weighted rate of return
41. 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.
Modal interval
Mean excess return
Residual income model (RIM) (also discounted ahnormal earnings model or Edwards-Bell-Ohlson model)
Liquidity risk
42. Is Derivatives in which the payoffs occur if a specific event occurs; generally referred to as options.
Contingent clain
Direct format (direct method)
Expected value
Molodovsky effect
43. A range that has a given proba-bility that it will contain the population parameter it is intended to estimate.
Operating cycle
Confidence interval
Percentiles
Interest coverage
44. A bond in which the amount received for delivering the bond is largest com-pared with the amount paid in the market for the bond.
Tenor
Parametric test
Cheapest to deliver
Modified duration
45. A trader who offers to buy or sell futures contracts - holding the position for only a brief period of time. Scalpers attempt to profit by buy-ing at the bid price and selling at the higher ask price.
Scalper
Underlying earnings (or persistent earnings - continu-ing earnings - or core earnings)
Units-of-production method
Rate of return
46. Heteroskedasticity in the error variance that is correlated with the values of the independent variable(s) in the regression.
Unbiasedness
Economic order quantity-reorder point
Capitalized cash flow model (method)
Conditional heteroskedasticity
47. The process of identifYing the level of risk an entity wants - measuring the level of risk the entity currently has - taking actions that bring the actual level of risk to the desired level of risk - and monitoring the new actual level of risk so tha
Risk management
Economic order quantity-reorder point
Variance
Delta-normal method
48. All members of a specified group.
Population
Modified duration
Centralized risk management or companywide risk management
Tracking error
49. The rate of return that suppliers ofcapital require as compensation for their contri-bution of capital.
Factor
Account
Cost of capital
Tangible assets
50. 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.
Direct format (direct method)
Debt incurrence test
Direct sales-comparison approach
Contingent clain