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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. The sum of market value of common equity - book value of preferred equity - and face value of debt.
Brokerage
Rational efficient markets formulation
Skewness
Total invested capital
2. Ratios that measure a company's ability to generate profitable sales from its resources (assets).
Commodity option
Profitability ratios
North
Cumulative relative frequency
3. Securities held by banks or other financial intermediaries for trading purposes.
Terminal price multiple
American option
Dealing securities
Imports
4. The condition of being of sufficient importance so that omission or misstatement of the item in a financial report could make a differ-ence to users' decisions.
Materiality
Total probability rule for expected value
Hurdle rate
Qualifying special purpose entities
5. 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
Strategic transaction
Segment ROA
Benchmark value of the multiple
6. The rate of return required by suppliers of capital for an individual source of a company's funding - such as debt or equity.
Component cost of capital
NTM P/E
Random number generator
Bank discount basis
7. A mean computed after assigning a stated percent of the lowest values equal to one specified low value - and a stated percent of the highest values equal to one specified high value.
Winsorized mean
Capitalized inventory costs
Current rate method
Standardized unexpected earnings (SUE)
8. A method for accounting for the effect of options (and warrants) on earnings per share (EPS) that specifies what EPS would have been if the options and warrants had been exercised and the company had used the pro-ceeds to repurchase common stock.
Treasury stock method
Book value equity per share
Bayes' formula
Market rate
9. An inventory accounting method that averages the total cost of available inventory items over the total units avail-able for sale.
Assignment of accounts receivable
Weighted average cost method
Adjusted beta
White sqnire
10. The combination of puts - the underly-ing - and risk-free bonds that replicates a call option.
Risk budgeting
Defined-contribution pension plans
Synthetic call
Stock options (stock option grants)
11. The difference between reported earnings per share and expected earnings per share.
Unexpected earnings (also earnings surprise)
Error autocorrelation
World Trade Organization
Number of days of receivables
12. FIrm The cash flow available to the company's suppliers of capital after all operat-ing expenses (including taxes) have been paid and necessary investments in working and fixed capital have been made.
Free cash flow to the
Net revenue
Rejection point (or critical value)
Price discovery
13. The owners' remaining claim on the company's assets after the liabilities are deducted.
Sample variance
Defined benefit obligation
Heteroskedasticity-consistent standard errors
Residual claim
14. Assets and liabilities with value equal to the amount of currency con-tracted for - a fixed amount of currency. Examples are cash - accounts receivable - mortgages receiv-able - accounts payable - bonds payable - and mort-gages payable. Inventory is
Surprise
Monetary assets and liabilities
Standardized unexpected earnings (SUE)
Degrees of freedom (df)
15. A rate of interest based on the secu-rity's face value.
Relative frequency
Nominal rate
Leverage
Multiple linear regression model
16. A decision rule for choos-ing between two investments based on their means and variances.
Sector rotation strategy
Markowitz decision rule
Balance sheet (statement of fmandal position or state-ment of fmandal condition)
Population
17. The condition in which supply equals demand.
Capitalized cash flow model (method)
Equilibrium
Designated fair value instruments
Control premium
18. A possible value of a random variable.
Systematic sampling
Statistic
Deferred tax assets
Outcome
19. A prof -itabili ty ratio calculated as operating income (i.e. - income before inte est and taxes) divided by revenue.
Economic value added (EVA)
Ope ating profit margin (operating margin)
Deferred tax liabilities
synunetric information
20. Weights that are used to compute a binomial option price. They are the probabilities that would apply if a risk-neutral investor valued an option.
Risk-neutral probabilities
Expiration date
Mean
Forward P/E (also leading P/E or prospective P/E)
21. Quantiles that divide a distribution into four equal parts.
Quartiles
Random walk
Degrees of freedom (df)
Purchasing power parity
22. A method for estimating the betafor a company or project; it requires using a com-parable company's beta and adjusting it for finan-cialleverage differences.
Normalized earnings per share (or normal earnings per share)
Time-weighted rate of return
Measure of central tendency
Pure-play method
23. A probability distribution that specifies the probabilities for a group of related random variables.
Multivariate distribution
Efficiency
Subjective probability
Balance sheet ratios
24. 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.
Terminal share price
Exchange rate
Bernoulli random variable
Random walk
25. Outflows of economic resources or increases in liabilities that result in decreases in equity (other than decreases because of distribu-tions to owners); reductions in net assets associ-ated with the creation of revenues.
Expenses
Built-up method
Sales
Rho
26. In using the method of com parables - the value of a price mul-tiple for the comparison asset; when we have com-parison assets (a group) - the mean or median value of the multiple for the group of assets.
Nonparametric test
Benchmark value of the multiple
Mutually exclusive events
Capital structure
27. Factor models that combine features of more than one type of factor model.
Sector neutralizing
American
Yield to maturity
Mixed factor models
28. The official price - designated by the clearinghouse - from which daily gains and losses will be determined and marked to market.
Settlement price
Indirect format (indirect method)
Probability
Operating leverage
29. Accounting that satisfies the condition that all changes in the book value of equity other than transactions with owners are reflected in income. The bottom-line income reflects all changes in shareholders' equity arising from other than owner transa
Clean surplus accounting
Sandwich spread
European-style option or
Scatter plot
30. (Aka forward rate agreement)
Weighted average cost method
Theory of contestable markets
Interest rate forward
Sharpe ratio
31. The risk of a change in value of a n asset or liability denomi-nated in a foreign currency due to a change in exchange rates.
Cost leadership
Interval scale
Yield
Exposure to foreign exchange risk
32. The required rate of return on com-mon stock.
Leading
Nonmonetary assets and liabilities
Dependent variable
Cost of equity
33. 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.
Provision
Diminishing balance method
Grouping by function
Depreciation
34. Momentum indicators based on price.
Technical indicators
Functional currency
Reorganization
Annuity
35. The use of an inaccurate pricing model for a particular investment - or the improper use of the right model.
Instability in the minimum-variance frontier
Lessor
Absolute valuation model
Model risk
36. 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
Stratified random sampling
Discount for lack of marketability
Bond equivalent yield
Weighted-average cost of capital (WACC)
37. The hypothesis accepted when the null hypothesis is rejected.
Cash flow additivity principle
Alternative hypothesis
Centralized risk management or companywide risk management
Dividend payout policy
38. Costs borne by owners to moni tor the management of the company (e.g. - board of director expenses).
Bonding costs
J oint probability function
Ex-dividend
Monitoring costs
39. Describes a distribution that is less peaked than the normal distribution.
Inventory turnover
Platykurtic
Capital market line (CML)
Absolute valuation model
40. An act passed by the U.S. Con-gress in 1933 that specifies the financial and other significant information that investors must receive when securities are sold - prohibits misrepresenta-tions - and requires initial registration of all public issuance
Venture capital investors
Securities Act of 1933
Quantile (or fractile)
Historical simulation (or back simulation)
41. 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
Frequency distribution
Surprise
Greenmail
Bottom-up analysis
42. An agreement between two parties in which one party - the buyer - agrees to buy from the other party - the seller - an underlying asset at a later date for a price established at the start of the contract.
Forward contract
Divestiture
Direct sales-comparison approach
Multicollinearity
43. A contract in which the under-lying asset is oil - a precious metal - or some other commodity.
Commodity forward
Free cash flow to the
Liquidity
Measure of location
44. Forecasted dividends per share over the next year divided by current stock price.
Leading dividend yield
Blockage factor
Yield
Vested benefit obligation
45. Aka marking to market.
Total return swap
Daily settlement
Default risk premium
Rho
46. Expectations that differfrom consensus expectations.
Dutch Book theorem
Differential expectations
Price to sales
Parametric test
47. 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
Pairs trading
Lockbox system
Account
Cumulative relative frequency
48. Aka 'Market efficiency.
Deep out of the money
Residual claim
Traditional efficient markets formulation
Sustainable growth rate
49. An attempt to acquire a com-pany against the wishes of the target's managers.
Internal rate of return (IRR)
Available-for-sale investments
Interval scale
Hostile transaction
50. A country that is lending more to the rest of the world than it is borrowing from it.
Available-for-sale investments
Committed lines of credit
Probability distribution
Net lender
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