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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. Profits lost from not having suffi-cient inventory on hand to satisfy demand.
Stock-out losses
Dummy variable
Box spread
Payoff
2. A criterion asserting that the optimal portfolio is the one that minimizes the probability that portfolio return falls below a threshold level.
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3. As used in option pricing - the standard deviation of the continuously compounded returns on the underlying asset.
Liruit down
Volatility
Float
Relative strength (RSTR) indicators
4. Making forecasts - estimates - or judgments about a larger group from a smaller group actually observed; using a sample statistic to infer the value of an unknown population parameter.
Operating lease
Qualitative dependent variables
Statistical inference
Debt-to-equity ratio
5. Net earnings avail-able to common shareholders (i.e. - net income minus preferred dividends) divided by the weighted average number of common shares out-standing during the period.
Cost averaging
Basic earnings per share (EPS)
Uniting of interests method
Vega
6. A contract in which one party has the right to claim a payment from another party in the event that a specific credit event occurs over the life of the contract.
Amortization
Tracking portfolio
Credit derivatives
Panel data
7. A profitability ratio calcu-lated as net income divided by average total assets; indicates a company's net profit generated per dollar invested in total assets.
Safety-first Rules
Return on assets (ROA)
Focus
Infant-industry argument
8. 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.
Cost averaging
Production-flexibility
Null hypothesis
Minority interest (noncontrolling interest)
9. Segment revenue divided by seg-ment assets .
Segment turnover
Degree of operating leverage (DOL)
Goodwill
Economic value added (EVA)
10. The procedure of drawing a sample to satisfy the definition of a simple ran-dom sample.
Market value of invested capital
Liquidity ratios
Coefficient of variation (CV)
Simple random sampling
11. The risk associated with interest rates - exchange rates - and equity prices.
Market risk
Type II error
Strip
Managerialism theories
12. The expected value of a stated event given that another event has occurred.
Comparative advantage
Conditional expected value
Per unit contribution margin
American option
13. A method of valuing prop-erty based on site value plus current construction costs less accrued depreciation.
Temporal method
Cost approach to value
Valuation ratios
Put
14. Above average or abnormally high growth rate in earnings per share.
Liquidity ratios
Supernormal growth
Centralized risk management or companywide risk management
Earnings at risk (EAR)
15. Under U.S. GAAP -a special purpose entity structured to avoid consol-idation that must meet qualification criteria.
Ordinal scale
Qualifying special purpose entities
Ratio spread
Profitability ratios
16. Said of a sale in which proceeds are to be paid in installments over an extended period of time.
omparable company
Giro system
Corporate raider
Installment
17. An active investment strategy whereby the timing of cash outflows is not matched with investment maturities.
Conventional cash flow
Rule of 70
Mismatching strategy
Population mean
18. Segment liabilities divided by segment assets.
Fair market value
Creative response
Segment debt ratio
Internal rate of return (IRR)
19. A specialized computer program or a spreadsheet that solves for the portfolio weights that will result in the lowest risk for a specified level of expected return.
Trailirig dividend yield
Optimizer
Presentation currency
Current taxes payable
20. A means of settling payments in which the amount owed by the first party to the second is netted with the amount owed by the sec-ond party to the first; only the net difference is paid.
Payment netting
Platykurtic
Internal rate of return (IRR)
Income approach
21. An interest rate swap in which the notional principal is indexed to the level of interest rates and declines with the level ofinterest rates according to a predefined schedule. This type of swap is frequently used to hedge secu-rities that are prepai
Empirical probability
Fundamental factor models
Cash flow statement (statement of cash flows)
Index amortizing swap
22. The analyst'S estimate of a stock's value at a particular point in the future .
Liquidity premium
Terminal value of the stock (or continuing value of the stock)
Scaled earnings surprise
Lessee
23. A forecasting approach that involves aggregating the individual company forecasts of analysts into industry fore-casts - and finally into macroeconomic forecasts.
Bottom-up forecasting approach
Swap
Purchased in-process research and development costs
Legislative and regulatory risk
24. The return on a portfolio minus the return on the portfolio's benchmark.
Pet projects
Transition phase
Out-of-sample forecast errors
Active return
25. Costs (e.g. - executives' salaries) that cannot be directly matched with the timing of rev-enues and which are thus expensed immediately.
U.S. interest rate differential
Accumulated benefit obligation
Period costs
Consolidation
26. Method of managing inventory that minimizes in-process inventory stocks. kth order autocorrelation The correlation between observations in a time series separated by k periods.
Matching strategy
Float factor
Trimmed mean
Just-in-time method
27. A swap transaction in which at least one cash flow is tied to the return to an equity portfo-lio position - often an equity index.
Equity swap
Profitability ratios
Subsistence real wage rate
Balance of payments accounts
28. FIrm model A model of stock valuation that views the value of a firm as the pres-ent value of expected future free cash flows to the firm.
Free cash flow to the
Economic sectors
Definitive merger agreement
Payout ratio
29. A model that specifies an asset's intrinsic value.
Ordinary shares (common stock or common shares)
Investment opportunity schedule
Absolute valuation model
Cost approach to value
30. A subset of a population.
Mark-ta-market
Sample
Descriptive statistics
Chart of accounts
31. The value to a specific buyer - tak-ing account of potential synergies based on the investor's requirements and expectations.
Definitive merger agreement
Operating lease
Asset-based valuation
Investment value
32. The amount of cash payable by a company to the bondholders when the bonds mature; the promised payment at maturity sepa-rate from any coupon payment.
Portfolio selection/composition problem
Expanded
Price momentum
Face value (also principal - par value - stated value - or maturity value)
33. The line with an inter-cept point equal to the risk-free rate that is tangent to the efficient frontier of risky assets; represents the efficient frontier when a risk-free asset is available for investment.
Simple interest
Capital market line (CML)
Exhaustive
Special purpose entity (special purpose vehicle or variable interest entity)
34. An active investment strategy that includes intentional matching of the timing of cash outflows with investment maturities.
Discount interest
Matching strategy
Complement
Project sequencing
35. American Free Trade Agreement An agree-ment - which became effective on January 1 - 1994 - to eliminate all barriers to international trade between the United States - Canada - and Mexico after a 15-year phasing-in period.
North
Quick assets
Indirect format (indirect method)
Securities Exchange Act of 1934
36. Cash-settled for-ward contracts - used predominately with respect to foreign exchange forwards.
Bear hug
Prior transaction method
Nondeliverable forwards (NDFs)
Factor
37. The expected excess return on the market over the risk-free rate.
IRR rule
Market risk premium
Statutory merger
Mean excess return
38. Options that - if exercised - would require the payment of more money than the value received and therefore would not be cur-rently exercised.
Dynamic hedging
Out-of-the-money
Minimum-variance portfolio
Nondeliverable forwards (NDFs)
39. 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.
Cost-of-service regulation
Vertical common-size analysis
Active investment managers
Corporation
40. A wholly-owned sub-sidiary of a company that is established to provide financing of the sales of the parent company.
Call
Economic value added (EVA)
Captive rmance subsidiary
Allowance for bad debts
41. The probability of a Type I error in testing a hypothesis.
Level of significance
Share repurchase
Divestiture
Cost approach to value
42. Bias introduced by systemati-cally exclua ing some members of the population according to a particular attribute-for example - the bias introduced when data availability leads to certain observations being excluded from the analysis.
Coefficient of variation (CV)
Hedging
Macroeconomic factor
Sample selection bias
43. CAPM An adaptation of the CAPM that adds to the CAPM a premium for small size and company-specific risk.
Share repurchase
Debt with warrants
Expanded
Guideline public companies
44. Estimates of items such as the useful lives of assets - warranty costs - and the amount of uncollectible receivables.
Settlement price
Real GDP per person
Scalper
Accounting estimates
45. An illiquidity discount that occurs when an investor sells a large amount of stock rela-tive to its trading volume (assuming it is not large enough to constitute a controlling ownership).
Bayes' formula
Blockage factor
Vertical common-size analysis
Point estimate
46. Agreements between the company as borrower and its creditors.
Eurodollar
Horizontal merger
Linear interpolation
Debt covenants
47. A variation of a floating-rate note that has some type of unusual characteristic such as a leverage factor or in which the rate moves opposite to interest rates.
Structured note
Cash flow at risk (CFAR)
Growth accounting
Exchange for physicals (EFP)
48. The owners' remaining claim on the company's assets after the liabilities are deducted.
Comparables (comps - guideline assets - guideline com-panies)
Residual claim
Addition rule for probabilities
Serially correlated
49. A swaption that allows the holder to enter into a swap as the fixed-rate payer and floating-rate receiver.
Weighted harmonic mean
Payer swaption
Corporate raider
Segment turnover
50. A business's value under a going-concern assumption.
Monitoring costs
Going-concern value
Prior transaction method
Mispricing