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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.
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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. A form of restructuring in which sharehold-ers of a parent company receive a proportional number of shares in a new - separate entity; share-holders end up owning stock in two different companies where there used to be one.
Spin-off
Downstream
Swap spread
Linear interpolation
2. PIE The price-to-earnings ratio that is fair - warranted - or justified on the basis of forecasted fundamentals.
Market rate
Justified (fundamental)
Time series
Du Pont analysis
3. A transaction in exchange-listed deriva-tive markets in which a party re-enters the market to close out a position.
Offsetting
Comparative advantage
Degree of operating leverage (DOL)
Debt-to-equity ratio
4. An act passed by the U.S. Congress in 1934 that created the Securi-ties and Exchange Commission (SEC) - gave the SEC authority over all aspects of the securities industry - and empowered the SEC to require peri-odic reporting by companies with public
Securities Exchange Act of 1934
Regression coefficients
Warehouse receipt arrangement
Weighted average cost method
5. A method of revenue recognition in which - in each accounting period - the company estimates what percentage of the contract is complete and then reports that per-centage of the total contract revenue in its income statement.
Percentage-of-completion
Default risk premium
Effective annual yield (EAY)
Normal distribution
6. With reference to portfolio strategies - the application of a strategy's portfolio selection rules to historical data to assess what would have been the strategy's historical performance.
Butterfly spread
Pairs trading
Takeover
Backtesting
7. With respect to revenue recognition - a method that s ecifies that the portion of the total profit of the sale that . s recognized in each pe riod is deter-mined by the percentage of the total sales price for which the seller has received cash.
Installment method (installment-sales method)
Constant maturity swap or
Offsetting
Working capital
8. An active investment strategy that includes intentional matching of the timing of cash outflows with investment maturities.
Matching strategy
Standard normal distribution (or unit normal distribu-tion)
Required rate of return
Sampling distribution
9. A non-operating entity created to carry out a specified purpose - such as leasing assets or securitizing receivables; can be a corporation - partnership - trust - limited liability - or partnership formed to facilitate a specific type of business act
Price-setting option
Marketability discount
Special purpose entity (special purpose vehicle or variable interest entity)
Log-log regression model
10. The competitive strategy of being the lowest cost producer while offering products comparable to those of other firms - so that prod-ucts can be priced at or near the industry average.
Sovereign yield spread
Working capital
Rule of 70
Cost leadership
11. Accounting in which some income items are reported as part of stockholders' equity rather than as gains and losses on the income statement; certain items of comprehensive income bypass the income statement and appear as direct adjustments to sharehol
Earnings game
Dirty surplus accounting
Simulation trial
Off-balance sheet imancing
12. A system that allows individual units within an organization to manage risk. Decentralization results in duplication ofeffort but has the advantage of having people closer to the risk be more d irectly involved in its management.
Decentralized risk management
Financial leverage
Capital market line (CML)
Time series
13. The company in a merger or acquisition that is acquiring the target.
Present value of growth opportunities (or value of growth)
Acquiring company - or acquirer
Guideline public companies
Option
14. The error of not rejecting a false null hypothesis.
Type II error
Time to expiration
Historical equity risk premium approach
Correlation analysis
15. A number between - 1 and + 1 that measures the co-movement (linear association) between two random variables.
Volatility
Correlation
Aging schedule
Inflation premium
16. A company's ability to satisfY its short-term obligations using assets that are most readily con-verted into cash; the ability to trade a futures con-tract - either selling a previously purchased contract or purchasing a previously sold contract.
Cost of preferred stock
Indexing
Market price of risk
Liquidity
17. A rate of interest based on the secu-rity's face value.
Nondeliverable forwards (NDFs)
Nominal rate
Noncurrent assets
Free cash flow to equity model
18. An attempt to acquire a com-pany against the wishes of the target's managers.
Hostile transaction
Markowitz decision rule
Expiration date
Cash settlement
19. Orders to buy or sell that are too large for the liquidity ordinarily available in dealer networks or stock exchanges.
Nonconventional cash flow
Efficient portfolio
Block
Working capital management
20. An unlimited funds environment assumes that the company can raise the funds it wants for all profitable projects simply by paying the required rate of return.
Blockage factor
Unlimited funds
Corporation
Organic growth
21. An equation describing the expected return on any asset (or portfolio) as a linear function of its beta relative to the market portfolio.
Projected benefit obligation
Uniting of interests method
Pooled estimate
Capital asset pricing model (CAPM)
22. The purchase of some portion of one company by another; the purchase may be for assets - a definable segment of another entity - orthe purchase of an entire company.
Acquisition
Fixed charge coverage
Quartiles
Heteroskedastic
23. Commercial and investmentbanks that make markets in derivatives.
Performance appraisal
Cumulative distribution function
Derivatives dealers
Acquisition
24. A merger in which the company being purchased becomes a subsidiary of the purchaser.
Subsidiary merger
Financial reporting quality
Number of days of inventory
Contingent clain
25. An option strategy that is equiva-lent to a short butterfly spread.
Contra account
Sandwich spread
Intangible assets
Quota
26. An option strategy involving the purchase of one option and sale of another option that is identical to the first in all respects except either exercise price or expiration.
Autocorrelation
Leptokurtic
Spread
Bill-and-hold basis
27. The value per share of a no-growth company - equal to the expected level amount of earnings divided by the stock's req uired rate of return.
White-corrected standard errors
No-growth value per share
Deliveryoption
Diff swaps
28. CAPM An adaptation of the CAPM that adds to the CAPM a premium for small size and company-specific risk.
Transition phase
Ratio scales
Expanded
Out-of-sample test
29. The positive square root of the sample variance.
Creative response
Nominal exchange rate
Sector rotation strategy
Sample standard deviation
30. An ordered listing.
Permutation
Risk-neutral valuation
Pooling of interests accounting method
Parametric test
31. A process used in a deliverable forward contract in which the long pays the agreed-upon price to the short - which in turn delivers the underlying asset to the long.
Contingent clain
Delivery
Population
Skewness
32. The risk that govern-mental laws and regulations directly or indirectly affecting a company's operations will change with potentially severe adverse effects on the com-pany's continued profitabiliny and even its long-term sustainability.
Legislative and regulatory risk
Specific identification method
Modified duration
Cash
33. An option in which the asset underlying the futures is a commodity - such as oil - gold - wheat - or soybeans.
Futures contract
No-growth value per share
Commodity option
Exchange rate
34. An account that offsets another account.
Diluted shares
Breusch-Pagan test
Securities Exchange Act of 1934
Contra account
35. The party obtaining the use of an asset through a lease.
Net revenue
Lessee
Cost of capital
Grant date
36. An adjustment used to facilitate delivery on bond futures contracts in which any of a number of bonds with different characteristics are eligible for delivery.
Alpha (or abnormal return)
Accrued interest
Illiquidity discount
Conversion factor
37. A solvency ratio measuring the number of times interest and lease payments are covered by operating income - calculated as (EBIT + lease payments) divided by (interest payments + lease payments).
Economies of scale
Revaluation
Fixed charge coverage
Before-tax cash flow
38. A listing in which tile order of tile listed items does not matter.
Arrears swap
Combination
Relative frequency
Outcome
39. The excess of assets over liabilities; the residual interest of shareholders in the assets of an entity after deducting the entity's liabilities.
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40. An increase in a company's earnings that results as a consequence of the idio-syncrasies of a merger transaction itself rather than because of resulting economic benefits ofthe combination.
LIFO method
Classified balance sheet
Bootstrapping earnings
PEG ratio
41. A measure of goodness-of-fit of a regres-sion that is adjusted for degrees of freedom and hence does not automatically increase when another independent variable is added to a regression.
Adjusted R2
Securities Act of 1933
Corporation
Cnsistent
42. The difference between reported earnings per share and expected earnings per share.
Structured note
Holding period yield (HPy)
Defined-contribution pension plans
Unexpected earnings (also earnings surprise)
43. Generally - a synonym for revenue; 'sales' is generally understood to refer to the sale of goods - whereas 'revenue' is understood to include the sale of goods or services.
Trailirig dividend yield
Sales
Conditional expected value
Butterfly spread
44. Covering or containing all possible outcomes.
Exhaustive
Subjective probability
Arrears swap
Tobin's q
45. An activity ratio equal to the number of days in period divided by receivables turnover.
Price discovery
Portfolio performance attribution
Days of sales outstanding (DSO)
Top-down analysis
46. The nonmonetary return offered by an asset when the asset is in short supply - often associated with assets with seasonal production processes.
Asian call option
Momentum indicators
Convenience yield
Mode
47. Another term for the historical method of estimating VAR. This term is somewhat misleading in that the method involves not a simulation of the past butrather what actually happened in the past - some-times adjusted to reflect the fact that a differen
Lessee
Historical simulation (or back simulation)
Forward integration
Agency costs
48. 1) The simultaneous purchase of an undervalued asset or portfolio and sale of an over-valued but equivalent asset or portfolio - in order to obtain a riskless profit on the price differential. Taking advantage of a market inefficiency in a risk-free
Likelibood
Diminishing balance method
Scatter plot
Arbitrage
49. 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.
Yield beta
Warehouse receipt arrangement
Dividend rate
Strip
50. Each value on a binomial tree from which suc-cessive moves or outcomes branch.
Standard deviation
Project sequencing
Price to cash flow
Node