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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. A procedure by which a population is divided into subpopulations (strata) based on one or more classification criteria. Sim-ple random samples are then drawn from each stratum in sizes proportional to the relative size of each stratum in the populati






2. The lowest possible value of an option.






3. The hypothesis accepted when the null hypothesis is rejected.






4. As used in this book - the use of a spreadsheet in executing a dividend discount model valuation - or other present value model valuation.






5. A theory of economic growth that proposes that real CDP per person grows because technological change induces a level of saving and investment that makes capital per hour oflabor grow.






6. The Eurodollar rate at which London banks lend dollars to other London banks; considered to be the best representative rate on a dollar borrowed by a private - high-quality borrower.






7. Aka Harmonic mean.






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






9. A pre-offer takeover defense mechanism that makes it prohibitively costly for an acquirer to take control of a target without the prior approval of the target's board of directors.






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






11. A dividend payout pol-icy under which earnings in excess of the funds necessary to finance the equity portion of com-pany's capital budget are paid out in dividends.






12. Management's focus on reporting earnings that meet consensus estimates.






13. A synonym for robust standard errors.






14. Revenue after adjustments (e.g. - for estimated returns or for amounts unlikely to be collected).






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






16. The use of inven-tory as collateral for a loan; similar to a trust receipt arrangement except there is a third party (i.e. - a warehouse company) that supervises the inventory.






17. The risk that a financial instrument cannot be purchased or sold without a significant concession in price due to the size of the market.






18. Income approach that estimates the value of all intangible assets of the business by capitalizing future earnings in excess of the estimated return requirements associated with working capital and fixed assets.






19. Valuation approach that values an asset based on pricing multiples from sales of assets viewed as similar to the subject asset.






20. The portfolio with the each given level of minimum variance for expected return.






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






22. A forward contract to enter into a swap.






23. The relationship between the price of the underlying and an option's exercise price.






24. A solvency ratio calculated as total debt divided by total shareholders' equity.






25. 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.






26. The ratio of cash dividends paid to earnings for a period.






27. Regulation that seeks to keep the rate of return in the industry at a com-petitive level by not allowing excessive prices to be charged.






28. An extra return that compensates investors for the increased sensitivity of the mar-ket value of debt to a change in market interest rates as maturity is extended.






29. A legal entity with rights similar to those of a person. The chief officers - executives - or top managers act as agents for the firm and are legally entitled to authorize corporate activi-ties and to enter into contracts on behalf of the business.






30. Stan-dard errors of the estimated parameters of a regression that correct for the presence of het-eroskedasticity in the regression's error term.






31. An estimate of the cost of common equity that is produced by summing the before-tax cost of debt and a risk premium that captures the additional yield on a company's stock relative to its bonds. The addi-tional yield is often estimated using historic






32. The periodic investment of a fixed amount of money.






33. The day that options are granted to employees; usually the date that compensation expense is measured if both the number of shares and option price are known.






34. A calculation of yield that is annualized using the ratio of 365 to the number of days to maturity. Bond equivalent yield allows for the restatement and comparison of securities with different compounding periods.






35. With reference to investment selection processes - an approach that starts with macro selection (i.e. - identifying attractive geo-graphic segments andVor industry segments) and then addresses selection 0 the most attractive investments within those






36. Total company valme (the market value of debt - common equity - and preferred equity) minus the value of cash and investments.






37. A measure of VAR equivalentto the analytical method bu t that refers to the use of delta to estimate the option's price sensitivity.






38. The principle that dol-lar amounts indexed at the same point in time are additive.






39. 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.






40. In the context of corporate finance - leverage refers to the use of fixed costs within a company's cost structure. Fixed costs that are operating costs (such as depreciation or rent) create operating leverage. Fixed costs that are financial costs (su






41. The process of selecting - evaluat-ing - and interpreting financial data in order to formulate an assessment of a company's present and future financial condition and performance.






42. FRA A contract in which the initial value is intentionally set at a value other than zero and therefore requires a cash payment at the start from one party to the other.






43. An investment decision rule that states that an investment should be undertaken if its NPV is positive but not undertaken if its NPV is negative.






44. Shareholders' equity (total assets minus total liabilities) minus the value of preferred stock; common shareholders' equity.






45. A function that specifies the probability that the random variable takes on a specific value.






46. A liquidity ratio calculated as current assets divided by current liabilities.






47. Diminishment in value as a result of car-rying (book) value exceeding fair value and/or recoverable value.






48. A balance sheet asset that arises when an excess amount is paid for income taxes relative to accounting profit. The taxable income is higher than accounting profit and income tax payable exceeds tax expense. The company expects to recove r the differ






49. 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






50. Observations of a variable over time.