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Test your basic knowledge |
CFA Level2 Vocab
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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. 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.
Trade receivables (commercial receivables or accounts receivable)
Corporation
Drag on li
Sample excess kurtosis
2. 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
Heteroskedasticity-consistent standard errors
Liabilities
Bottom-up analysis
In-process research and development
3. The actual value of a variable minus its pre-dicted (or expected) value.
Surprise
Pairs arbitrage
Put
Residual income (or economic profit or abnormal earnings)
4. A form of centralized risk management that typically encompasses the man-agement of a broad variety of risks - ind uding insuran -ce risk.
Controlling interest
Enterprise risk management
Mature growth rate
Held-to-maturity investments
5. A European-style option with a value at maturity equal to the difference between the stock price at maturity and the average stock price during the life of the option - or $0 - whichever is greater.
Zero-cost collar
Solvency ratios
Asian call option
Vested benefits
6. Estimate of the aver-age number of days it takes to collect on credit accounts.
Number of days of receivables
New growth theory
Agency costs of equity
Cumulative relative frequency
7. A swap in which the underlying is a commodity such as oil - gold - or an agricultural product.
Dividend rate
Net revenue
Commodity swap
Free cash flow to equity model
8. Independent projects are projects whose cash flows are independent ofeach other.
Single-step format
Conditional expected value
Independent projects
Accounting estimates
9. Netting the market values of all derivative contracts between two parties to deter-mine one overall value owed by one party to another in the event of bankruptcy.
Write-down
In-process research and development
Structured note
Closeout netting
10. To sell the assets of a company - division - or subsidiary piecemeal - typically because of bank-ruptcy; the form of bankruptcy that allows for the orderly satisfaction of creditors' claims after which the company ceases to exist.
Strategic transaction
Operating leverage
Inventory blanket lien
Liquidation
11. A measurement scale that categorizes data but does not rank them.
Money market
Nominal scale
Currency forward
Upstream
12. The operational flexibility to alter production when demand varies from fore-cast. For example - if demand is strong - a company may profit from employees working overtime or from adding additional shifts.
Degree of confidence
Production-flexibility
No-growth value per share
Stock-out losses
13. Residual income after the forecast horizon.
Continuing residual income
Mixed offering
Residual income (or economic profit or abnormal earnings)
Free cash flow method
14. Asset inflows not directly related to the ordi-nary activities of the business.
Gains
Statistics
Long-lived assets (or long-term assets)
Linear trend
15. The principles governing equivalence relationships between cash flows with different dates.
Normalized earnings
Time value of money
Stock options (stock option grants)
Heteroskedasticity
16. The ratio of P I E-ta-growt - calculated as the stock's P /.E divided by the expected earnings growth rate in percent.
Parametric test
Alternative hypothesis
Local currency
PEG ratio
17. A comparison of revenues with working capital to produce a measure that shows how efficiently working capital is employed.
Spread
Working capital turnover
Sales-type lease
Book value of equity (or book value)
18. An approach to investment analysis and security selection.
Equity charge
Investment strategy
Bank discount basis
Survey approach
19. An association or relationship between variables that cannot be graphed as a straight line.
Off-balance sheet imancing
Nonlinear relation
Captive rmance subsidiary
Relative dispersion
20. The probability of a Type I error in testing a hypothesis.
Versioning
Built-up method
Level of significance
Reviewed fmancial statements
21. 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.
Divestiture
Out-of-sample forecast errors
Poison pill
Fixed exchange rate
22. With reference to time-series mod-els - a model in which the growth rate of the time series as a function of time is constant.
Fair value
Target company - or target
Log-linear model
Coefficient of variation (CV)
23. 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.
Simple random sample
Grant date
Impairment of capital rule
Terminal price multiple
24. The ratio of gross profi t to revenues.
Proxy fight
FIFO method
Measure of location
Gross profit argin
25. A liquidi ty ratio calculated as (cash + short-term marketable investments) divided by current liabilities; measures a company's ability to meet its current obligations with just the cash and cash equivalents on hand.
Method of comparables
Ordinal scale
Long
Cash ratio
26. The value derived using a sum-of-the-parts valuation.
Homoskedasticity
Breakup value or private market value
Direct sales-comparison approach
Reconciliation
27. An industry's underlying eco-nomic and technical characteristics.
Cash-generating unit
Financial flexibility
Industry structure
Conditional expected value
28. Aka 'Market efficiency.
Traditional efficient markets formulation
Time series
Drag on li
Present value model or discounted cash flow model
29. The market for short-term debt instruments (one-year maturity or less).
Roy's safety first criterion
Perfect collinearity
Uniting of interests method
Money market
30. A model that specifies an asset's value relative to the value of another asset.
Covariance
Gross profit argin
Relative valuation models
Return on invested capital (ROIC)
31. A conventional cash flow pattern is one with an ini tial outflow followed by a series of in ows.
Relative dispersion
Contingent consideration
Conventional cash flow
Free cash flow
32. The government's holding of foreign cun; - e.!}cy.
Duration
U.S. official reserves
Univariate distribution
Poison puts
33. The process of using an option to buy or sell the underlying.
Double declining balance depreciation
Free cash flow
Exercise or exercising the option
Common-size analysis
34. Describes two time series that have a long-term financial or economic relationship such that they do not diverge from each other without bound in the long run.
Shortfall risk
Cointegrated
Financial flexibility
Target balance
35. The amount of income earned during a period per share of common stock.
Solvency ratios
Earnings per share
Continuous time
Simple random sampling
36. Tax expenses that have been recognized and recorded on a company's income statement but which have not yet been paid.
Current taxes payable
Option price - option premium - or premium
Break point
Confidence interval
37. A number between 0 and 1 describing the chance that a stated event will occur.
Probability
Fair market value
Combination
Decision rule
38. A company's profits on its usual business activities before deducting taxes.
Relative frequency
Operating profit (operating income)
Taxable income
Segment margin
39. 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.
Balance sheet ratios
Matrix pricing
Total probability rule for expected value
Weighted-average cost of capital (WACC)
40. The risk that failures by company man-agers to effectively manage a company's environ-mental - social - and governance risk exposures will lead to lawsuits and other judicial remedies - resulting in potentially catastrophic losses for the company; th
Capital allocation line (CAL)
Electronic funds transfer
Legal risk
Target capital structure
41. A range that has a given proba-bility that it will contain the population parameter it is intended to estimate.
Future value (FV)
Regression coefficients
Confidence interval
Full price
42. A con-flict of interest that arises when the agent in an agency relationship has goals and incentives that differ from the principal to whom the agent owes a fiduciary duty.
Agency problem - or principal-agent problem
Broker
Convertible debt
Instability in the minimum-variance frontier
43. A cost that has already been incurred.
Multivariate normal distribution
Root mean square(l er ror (RMSE)
Cost of carry model
Sunk cost
44. Debt and equity secu-rities not classified as either held-to-maturity or held-for-trading securities. The investor is willing to sell but not actively planning to sell. In general - available-for-sale securities are reported at fair value on the bala
Downstream
Capital asset pricing model (CAPM)
Available-for-sale investments
Asset-based valuation
45. The competitive strategy of seeking a compet-itive advantage within a target segment or seg-ments of the industry - either on the basis of cost leadership (cost focus) or differen tiation (differ-entiation focus) .
Focus
Measure of location
Expiration date
Discount for lack of control
46. A legal contract specifYing the terms of a bond issue.
Other receivables
Bond indentnre
Exports
Locked limit
47. The lowest possible value of an option.
Vesting date
Indirect format (indirect method)
Mean absolute deviation
Lower bound
48. A liquidity ratio that esti-mates the number of days that an entity could meet cash needs from liquid assets; calculated as (cash + short-term marketable investments + receivables) divided by daily cash expenditures.
Zero-cost collar
Trimmed mean
Defensive interval ratio
Variance
49. All members of a specified group.
Defined benefit obligation
Population
Cherry-picking
Bond-equivalent basis
50. The contribution to active risk squared resulting from the portfolio's different-than-benchmark exposures relative to factors specified in the risk model.
Income
Active factor risk
Lessor
Robust