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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. The actual cash that would be avail-able to the company's investors after making all investments necessary to maintain the company as an ongoing en terprise (also referred to as free cash flow to the firm); the internally generated funds that can be
Sample standard deviation
Free cash flow
Convenience yield
Book value of equity (or book value)
2. The number of successes in n Bernoulli trials for which the probability of success is constan t for all trials and the trials are independent.
Prepaid expense
Binomial random variable
Off-market
Official settlements account
3. Segment liabilities divided by segment assets.
Tender offer
Inverse price ratio
Contango
Segment debt ratio
4. 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.
Conditional heteroskedasticity
Closeout netting
Regime
Liquidation value
5. The strongest form of short-term bank borrowing facilities; they are in effect for multiple years (e.g. - 3-5 years) and may have optional medium-term loan features.
Stock-out losses
Revolving credit agreements
Capital rationing
Debt-to-assets ratio
6. A limit move in the futures market in which the price at which a transaction would be made is at or above the upper limit.
Partial regression coefficients or partial slope coeffi-cients
Growth accounting
Corporate raider
Liruit up
7. Projects in which influential managers want the corporation to invest. Often - unfortu-nately - pet projects are selected without undergo-ing normal capital budgeting analysis.
Sunk cost
Operating lease
Pet projects
Single-payment loan
8. A merger involving companies inthe same line of business - usually as competitors.
Long-term contract
Asset purchase
Implied repo rate
Horizontal merger
9. A dividend yield based on the anticipated dividend during the next 12 months.
Definition of value (or standard of value)
Forward dividend yield
Market efficiency
Floor
10. The variance of one variable - given the outcome of another.
Geometric mean
Conditional variances
Trailirig dividend yield
Volatility
11. A multifactor model in which the factors are attributes of stocks or com-panies that are important in explaining cross-sectional differences in stock prices.
Rule of 70
Market value of invested capital
Liruit down
Fundamental factor models
12. Options that - if exercised - would result in the value received being worth more than the payment required to exercise.
Population mean
Broker
In-the-money
Pecking order theory
13. Activities that are part of the day-to-day business functioning of an entity - such as selling inven tory and providing services.
Subsidiary merger
Deciles
Operating activities
Operating cycle
14. The amount of time between check issuance and a check's clearing back against the company's account.
Salvage value
Illiquidity discount
Disbursement float
Tax base (tax basis)
15. A si gle numerical estimate of an unknown quantity - such as a population parameter.
Foreign currency
Point estimate
Cost structure
Notes payable
16. The equal value of differ-ent monies.
Purchasing power parity
Historical equity risk premium approach
Installment method (installment-sales method)
Rule of 70
17. A variation of the market approach; establishes a value estimate based on the observed multiples from trading activity in the shares of public companies viewed as reasonably comparable to the subject private company.
Top-down investing
Guideline public company method
Marking to market
Capital budgeting
18. An equation describing the expected return on any asset (or portfolio) as a linear function of its beta relative to the market portfolio.
Bond yield plus risk premium approach
U.S. GAAP and uniting of interests under IFRS
Capital asset pricing model (CAPM)
Operating return on assets (operating
19. A company's operating profit with adjustments to normalize the effects of capital structure.
Statement of changes in shareholders' equity (state-ment of owners' equity)
Efficient frontier
Friendly transaction
Net operating profit less adjusted taxes - or NOPLAT
20. A type of weighted mean computed by averaging the reciprocals of the ohservations - then taking the reciprocal of that average.
Cross-product netting
Risk budgeting
Harmonic mean
Accrued interest
21. An average in which each observation is weighted by an index of its relative importance.
Defensive interval ratio
Operating breakeven
Conditional heteroskedasticity
Weighted mean
22. The seller of a derivative contract. Also refers to the position of being short a derivative.
Catalyst
Short
Probability distribution
Vertical merger
23. The operational flexibility to adjust prices when demand varies from forecast. For example - when demand exceeds capacity - the company could benefit from the excess demand by increasing prices.
Weighted harmonic mean
Deep out of the money
North
Price-setting option
24. PIE PI Es based on normalized EPS data.
Economic profit
Controlling interest
Empirical probability
Normalized
25. A poison pill takeover defense that gives target company shareholders the right to purchase shares of the acquirer at a significant discount to the market price - which has the effect of causing dilution to all existing acquiring com-pany shareholder
A priori probability
Shortfall risk
Flip-over pill
Market share test
26. The preference some investors have for shares that exhibit certain characteristics.
Nonconventional cash flow
Clientele effect
Adjusted R2
Power of a test
27. A business owned and operated by a single person.
Binomial model
Pure factor portfolio
Sole proprietorship
Minority active investments
28. A measure of VAR equivalentto the analytical method bu t that refers to the use of delta to estimate the option's price sensitivity.
Probability
Legislative and regulatory risk
Sample skewness
Delta-normal method
29. The nonmonetary return offered by an asset when the asset is in short supply - often associated with assets with seasonal production processes.
Income tax paid
Breakup value or private market value
At the money
Convenience yield
30. Aka Liquidity discount.
Illiquidity discount
Lockbox system
Expected value
Bond equivalent yield
31. CAPM An adaptation of the CAPM that adds to the CAPM a premium for small size and company-specific risk.
Diluted shares
Expanded
Statement of changes in shareholders' equity (state-ment of owners' equity)
Simple random sampling
32. The portfolio that exploits an arbitrage opportunity.
Arbitrage portfolio
Weighted mean
Homogenization
Flexible exchange rate
33. The property of having a non-constant variance; refers to an error term with the property that its variance differs across observations.
Perpetuity
Centralization permits economies of scale and allows a company to use some of its risks to offset other risks.
Heteroskedasticity
Catalyst
34. Under U.S. GAAP - a measure used in estimating a defined-benefit pen-sion plan's liabilities - defined as 'the actuarial present value of benefits (whether vested or non-vested) attributed by the pension benefit formula to employee service rendered b
U.S. interest rate differential
Payment date
Capital budgeting
Accumulated benefit obligation
35. The P/E to-growth ratio - calculated as the stock's PI E divided by the expected earnings growth rate.
PEG
Rho
Sarbanes-Oxley Act
Going-concern assumption
36. Quantiles that divide a distribution into 10 equal parts.
Theory of contestable markets
Comparative advantage
Arbitrage opportunity
Deciles
37. The value to a specific buyer - tak-ing account of potential synergies based on the investor's requirements and expectations.
Index amortizing swap
Held-to-maturity investments
Day trader
Investment value
38. Fees charged to companies b)' invest-menJ ~nkers and other costs assooiated witli: rai'.. ing new capital.
Expensed
Financial flexibility
Flotation cost
Captive rmance subsidiary
39. A share of any profits that is paid to the general partner (manager) of an investment partnership - such as a private equity or hedge fund - as a form of compensation designed to be an incentive to the manager to maximize per-formance of the investme
Foreign exchange market
Modified duration
Expensed
Carried interest
40. Valuation approach that values an asset based on pricing multiples from sales of assets viewed as similar to the subject asset.
Tangible book value per share
White knight
Market approach
Type II error
41. A method of account-ing for joint ventures where the venturer's share of the assets - liabilities - income and expenses of the joint venture are combined on a line-by-line basis with similar items on the venturer's financial statements.
Quality of earnings analysis
Trading securities (held-for-trading securities)
Proportionate consolidation
American option
42. A variation of a forward contract that has essentially the same basic definition but with some additional features - such as a clearing-house guarantee against credit losses - a daily settlement of gains and losses - and an organized electronic or fl
Deliveryoption
Cash flow additivity principle
Futures contract
Marking to market
43. The return that aninvestor earns during a specified holding period;holding period re turn with reference to a fixed-income instuument.
Holding period yield (HPy)
Subsidiary merger
Enterprise value multiple
Flotation cost
44. The amount of funds originally invested in a project or instrument; the face value to be paid at maturity.
Marketability discount
Underlying earnings (or persistent earnings - continu-ing earnings - or core earnings)
Principal
Collar
45. An arrangement whereby a customer authorizes a debit to a demand account; typically used by companies to collect routine pay-ments for services.
Credit derivatives
Effective annual rate
Direct debit program
Spreadsheet modeling
46. Sales on a bill-and-hold basis involve selling products but not delivering those products until a later date.
Bill-and-hold basis
A priori probability
Covariance
Yield spread
47. The contri-bution to active risk squared resulting from the portfolio's active weights on individual assets as those weights interact with assets' residual risk.
Active specific risk or asset selection risk
Price to sales
Split-off
Homoskedasticity
48. The sale - liquidation - or spin-off of a d'vi-sion or subsidiary.
Divestiture
Model specification
Interest rate forward
Pyramiding
49. 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.
Quintiles
Principal
Clearinghouse
Capital rationing
50. The hypothesis to be tested.
Effective annual yield (EAY)
Ordinary annuity
Method of comparables
Null hypothesis