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Test your basic knowledge |
CFA Level2 Vocab
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certifications
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cfa
Instructions:
Answer 50 questions in 15 minutes.
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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. Independent projects are projects whose cash flows are independent ofeach other.
Net revenue
Mean absolute deviation
Independent projects
Option price - option premium - or premium
2. The condition in a financial mar-ket in which two equivalent financial instruments or combinations of financial instruments can sell for only one price. Equivalent to the principle that no arbitrage opportunities are possible.
Vertical common-size analysis
Law of one price
Floorlet
Time series
3. A long-term pattern of movement in a partic-ular direction.
Trend
Descriptive statistics
Decentralized risk management
Cherry-picking
4. A procedure for determining the interest on a loan or bond in which the interest is deducted from the face value in advance.
Build-up method
Trend
Required rate of return
Discount interest
5. An entity associated with a futures market that act~ as middleman between the con-tracting parties and guarantees to each party the performance of the other.
Enhanced derivatives products companies (EDPC)
Likelibood
Clearinghouse
Price to cash flow
6. In reference to mergers - it is the savings achieved through the consolidation of operations and elimination of duplicate resources.
Money-weighted rate of return
Economies of scale
Noncurrent assets
Rho
7. A spontaneous form of credit in which a purchaser of the goods or service is financing its purchase by delaying the date on which payment is made.
Growth investors
Split-rate
Out-of-sample forecast errors
Trade credit
8. Each component put option in a floor.
Bond indentnre
Floorlet
Manufacturing resource planning (MRP)
Level of significance
9. The management of a company's short-term assets (such as inventory) and short-term liabilities (such as money owed to suppliers) .
Working capital management
Index amortizing swap
Return on common equity (ROCE)
Implied yield
10. An agreement allowing the lessee to use some asset for a period of time; essentially a rental.
Settlement date or payment date
Arbitrage
Operating lease
Interval scale
11. Debt (fixed-income) securities that a company intends to hold to matu-rity; these are presented at their original cost - updated for any amortization of discounts or pr.emiums.
Held-to-maturity investments
Laddering strategy
Active return
Linear interpolation
12. The sample autocorrela-tions of the residuals.
Payer swaption
Activity ratios (asset utilization or operating efficiency ratios)
Residual autocorrelations
Heteroskedasticity
13. A rule that states that the number of years it takes for the level of a variable to double is approximately 70 divided by the annual percent-age growth rate of the variable.
Perfect collinearity
Cost of equity
Out-of-sample test
Rule of 70
14. The mix of a company's variable costsand fixed costs.
Cost structure
Sunk cost
Entry price
Financial transaction
15. A measure of the expected annual cash flow from the operation of a real estate investment after all expenses but before taxes.
Electronic funds transfer
Amortization
Before-tax cash flow
Due diligence
16. The estimated gross amount of money that could be realized from the liquidation sale of an asset or assets - given a rea-sonable amount of time to find a purchaser or purchasers.
Holding period yield (HPy)
Current liabilities
Orderly liquidation value
Adjusted present value (APV)
17. Differences between tax and financial reporting of revenue (expenses) that will not be reversed at some future date. These result in a difference between the company's effective tax rate and statutory tax rate and do not result in a deferred tax item
Diff swaps
Annual percentage rate
Portfolio implementation problem
Permanent differences
18. A range that has a given proba-bility that it will contain the population parameter it is intended to estimate.
Long-term equity anticipatory securities (LEAPS)
Macroeconomic factor
Confidence interval
Purchasing power gain
19. Income approach that values an asset based on estimates of future cash flows discounted to present value by using a discount rate reflective of the risks associated wi th the cash flows.
Nominal exchange rate
Free cash flow method
Aging schedule
Leveraged floating-rate note or leveraged floater
20. A contract signed by both parties to a merger that clarifies the details of the transaction - including the terms - war-ranties - conditions - termination details - and the rights of all parties.
Fundamental beta
Corporate governance
Expanded
Definitive merger agreement
21. PIE (or forward PIE or prospective PIE) A stock's current price divided by the next year's expected earnings.
Price to sales
Out-of-the-money
Floor traders or locals
Leading
22. The expansion of production pos-sibilities that results from capital accumulation and technological change.
Economic growth
Enhanced derivatives products companies (EDPC)
Exp ected holding-period return
Capitalization rate
23. Essentially - the pur-chase of some asset by the buyer (lessee) that is directly financed by the seller (lessor).
Gains
Logit model
Finance lease (capital lease)
Defensive interval ratio
24. A measurement scale that sorts data into categories that are ordered (ranked) with respect to some characteristic.
Due diligence
Ordinal scale
Growth option or expansion option
Bundling
25. A quantity - calculated based on a sam-ple - whose value is the basis for deciding whether or not to reject the null hypothesis.
Pure factor portfolio
Takeover premium
Pull on liquidity
Test statistic
26. A number between 0 and 1 describing the chance that a stated event will occur.
Probability
Statement of changes in shareholders' equity (state-ment of owners' equity)
Direct write-off method
Ex-dividend
27. The yield to maturity on a basis that ignores compounding.
Financial risk
Modal interval
Bond-equivalent yield
Monitoring costs
28. The risk that a company will suffer an extended diminution in market value relative to other companies in the same industry due to a demonstrated lack of concern for environmental - social - and governance risk factors.
Downstream
Reputational risk
Off-market
Nonstationarity
29. The expected excess return on the market over the risk-free rate.
Market risk premium
Tree diagram
Optimal capital structure
Netting
30. The process by which options and other derivatives are priced by treating investors as though they were risk neutral.
Gross profit argin
Residual income model (RIM) (also discounted ahnormal earnings model or Edwards-Bell-Ohlson model)
Risk-neutral valuation
Matching strategy
31. A valuation ratio calculated as price per share divided by cash flow per share.
Mean-variance analysis
Minority interest (noncontrolling interest)
Mean reversion
Price to cash flow
32. The granting of stock to employees as a form of compensation.
Stock grants
Target semivariance
Takeover premium
Build-up method
33. Measure of financial reporting quality by subtracting the mean or median ratio for a given sector group from a given company's ratio.
Safety stock
Reviewed fmancial statements
Sector neutralizing
Other comprehensive income
34. A profitabili ty ratio calcu-lated as EBIT divided by the sum of short-and long-te debt and equi ty.
Implied repo rate
Return on total capital
Terms of trade
Sample kurtosis
35. As an approach to valuing a company - the sum of the value of the company - assuming no use of debt - and the net present value of any effects of debt on company value.
Fiduciary call
Block
Mature phase
Adjusted present value (APV)
36. The value of an option at expiration.
Factor sensitivity (also factor betas or factor loadings)
Payoff
Pretax margin
Hypothesis testing
37. A quoting convention that annualizes - on a 360-day year - the discount as a percentage of face value.
Bank discount basis
Pure factor portfolio
Floor
Diffuse prior
38. An account that offsets another account.
Comparative advantage
Diluted earnings per share (diluted
Clearinghouse
Contra account
39. The combining of the results of oper-ations of subsidiaries with the parent compaIL y to present financial statements as if they were a sin-gle economic unit. The asset - iabilities - revenues and expenses of the subsidiaries are combined with those
Return on common equity (ROCE)
Stock-out losses
Horizontal common-size analysis
Consolidation
40. 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.
Day trader
Test statistic
Illiquidity discount
Off-market
41. The company in a merger or acquisition that is acquiring the target.
Measure of location
Acquiring company - or acquirer
Screening
Out-of-sample test
42. A corporate transac-tion in which management repurchases all out-standing common stock - usually using the proceeds of debt issuance.
Management buyout (MBO)
Heteroskedastic
Agency costs
Dynamic hedging
43. When disbursements are paid tooquickly or trade credit availability is limited -requiring companies to expend funds beforethey receive funds from sales that could cover theliability.
Securities Act of 1933
Target semideviation
Pull on liquidity
Enterprise risk management
44. In accounting contexts - cash on hand (e.g. - petty cash and cash not yet deposited to the bank) and demand deposits held in banks and similar accounts that can be used in payment of obligations.
Cash
Net operating assets
Synthetic forward contract
Working capital turnover
45. The potential for asymmetric information to bring about a general decline in product quality in an industry.
Rho
Economic exposure
Time value decay
Lemons problem
46. A finan-cial metric that measures the length of time required for a company to convert cash invested in its operations to cash received as a result of its oper-ations; equal to days of inventory on hand + days of sales outstanding - number of days of
Conglomerate discount
Cash conversion cycle (net operating cycle)
Cherry-picking
Mean excess return
47. The risk associated with the pos-sibility that a payment currently due will not be made.
Qualifying special purpose entities
Measure of central tendency
Current credit risk
Tobin's q
48. A rule explaining the uncon-ditional probability of an event in terms of proba-bilities of the event conditional on mutually exclusive and exhaustive scenarios.
Interquartile range
Total probability rule
Level of significance
Conversion factor
49. A bias caused by using information that was not available on the test date.
Robust
Look-ahead bias
Prior probabilities
Income approach
50. The particular value calculated from sam-ple observations using an estimator.
Estimate
Trailirig dividend yield
Leveraged recapitalization
Pairs arbitrage