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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.
If you are not ready to take this test, you can
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. 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
Equitizing cash
Permanent differences
Shortfall risk
Butterfly spread
2. Analysts who work at brokerages.
Economies of scale
Sell-side analysts
Fiduciary call
Acquisition method
3. A function with non-negative values such that probability can be described by areas under the curve graphing the function.
Probability density function
Dealing securities
Enterprise value (EV)
Capped swap
4. A financial instrument whose valuede ends on the value of some nderlying asset orfactor (e.g. - a stock price - an interest rate - orexchange rate ).
Residual loss
Derivative
Earnings per share
Sole proprietorship
5. The cash flow that is real-ized because of a decision; the changes or incre-ments to cash flows resulting from a decision or action.
Outliers
Simple random sample
Incremental cash flow
Cap
6. A subset of a larger popula-tion created in such a way that each element of the population has an equal probability of being selected to the subset.
Derivative
Investment opportunity schedule
Simple random sample
Interest rate collar
7. The process of determining the value of an asset or service on the basis of variables per-ceived to be related to future investment returns - or on the basis of comparisons with closely similar assets.
Valuation
Fixed costs
Basis point value (BPV)
Winsorized mean
8. The capital structure at which the value of the company is maximized.
Optimal capital structure
Protective put
Portfolio possibilities curve
Sharpe ratio
9. An intangible that cannot be acquired singly and that typically possesses an indefinite benefit period; an example is account-ing goodwill.
Interquartile range
Real GDP per person
Delivery
Unidentifiable intangible
10. The earnings growth rate in a company's mature phase; an earnings growth rate that can be sustained long term.
Mature growth rate
Homogenization
Node
Eurodollar
11. An algorithm that pro-duces uniformly distributed random numbers between 0 and 1.
Portfolio implementation problem
Cost leadership
Random number generator
Serially correlated
12. The effect of an investment on other things besides the investment itself.
Illiquidity discount
Fixed costs
Capital structure
Externality
13. A forecasting process in which the next period's value as predicted by the forecasting equation is substituted into the right-hand side of the equation to give a predicted value two periods ahead.
Chain rule of forecasting
Leading dividend yield
Valuation ratios
Built-up method
14. A long-term pattern of movement in a partic-ular direction.
Tax loss carry forward
Trend
Managerialism theories
Delivery
15. Individual accounts to which an employee and typically the employer makes contributions - generally on a tax-advantaged basis. The amounts of contributions are defined at the outset - but the future value of the benefit is unknown. The employee bears
Defined-contribution pension plans
Paired comparisons test
Target company - or target
Organic growth
16. Each component put option in a floor.
Floorlet
Net income (loss)
Random number generator
Nominal risk-free interest rate
17. The number of indepen-dent observations used.
Service period
Degrees of freedom (df)
Proportionate consolidation
Platykurtic
18. Asset allocation in which the invest-ment in the market is increased if one forecasts that the market will outperform T-bills.
Market timing
Dividend discount model (DDM)
Equity charge
Pure factor portfolio
19. An option strategy involving the purchase of a put and sale of a call in which the holder of an asset gains protection below a certain level - the exercise price of the put - and pays for it by giving up gains above a certain level - the exercise pri
Taxable income
Net borrower
Collar
Spin-off
20. With reference to estimators - describes an estimator for which the probability of estimates close to the value of the population parameter increases as sample size increases.
Discount for lack of marketability
Nonconventional cash flow
Ope ating profit margin (operating margin)
Cnsistent
21. A depreciation method that allocates evenly the cost of a long-lived asset less its estimated residual value over the estimated useful life of the asset.
Sensitivity analysis
General Agreement on Tariffs and Trade
Straight-line method
Positive serial correlation
22. A public offer whereby the acquirer invites target shareholders to submit ('tender') their shares in return for the proposed payment.
Serially correlated
Revenue
Tender offer
Residual income (or economic profit or abnormal earnings)
23. Above average or abnormally high growth rate in earnings per share.
Investment opportunity schedule
Supernormal growth
Heteroskedasticity
Pure factor portfolio
24. A strategy in which a position is hedged by making frequent adjustments to the quantity of the instrument used for hedging in relation to the instrument being hedged.
Swaption
Dynamic hedging
In-the-money
Correlation analysis
25. Stan-dard errors of the estimated parameters of a regression that correct for the presence of het-eroskedasticity in the regression's error term.
Heteroskedasticity-consistent standard errors
Premise of value
Yield to maturity
Tracking portfolio
26. Any departure of the market price of an asset from the asset's estimated intrinsic value.
Mispricing
Present (price) value of a basis point (PVBP)
Cross-sectional analysis
One third rule
27. A transaction between two affiliates - an investor company and an associate company such that the investor company records a profit on its income statement. An example is a sale of inven-tory by the investor company to the associate.
Liabilities
Downstream
Currency swap
ecurity market line (SML)
28. A regression assumption violation that occurs when two or more independent vari-ables (or combinations of independent variables) are highly but not perfectly correlated with each other.
Multicollinearity
Sales risk
Amortization
Multiple linear regression model
29. Company growth in output or sales that is achieved by buying the necessary resources externally (i.e. - achieved through mergers and acquisitions) .
Paired observations
Chart of accounts
Settlement date or payment date
External growth
30. The single-period interest rate for a completely risk-free security if no infla-tion were expected.
Noncurrent
Target payout ratio
Compounding
Real risk-free interest rate
31. The money of other countries regardless of whether that money is in the form of notes - coins - or bank deposits.
Top-down investing
Risk premium
Foreign currency
Portfolio performance attribution
32. Ratios that measure the quantity of an asset or flow (e.g. - earnings) in relation to the price associated with a specified claim (e.g. - a share or ownership of the enterprise).
Direct f'mancing lease
Payables turnover
Realizable value (settlement value)
Valuation ratios
33. Income as reported on the income statement - in accordance with prevailing account-ing standards - before the provisions for income tax expense.
Fundamental beta
Conventional cash flow
Accounting profit (income before taxes or pretax income)
Tobin's q
34. The value of exports of goods and ser-vices minus the value of imports of goods and services.
Total probability rule
Sampling
Agency relationships
Net exports
35. A random variable for which the range of possible outcomes is the real line (all real numbers between (-00 and +(0) or some subset of the real line.
Presentation currency
Statistical factor models
Continuous random variable
Notes payable
36. An electronic payment system used widely in Europe and Japan.
Return on equity (ROE)
Cost recovery method
Giro system
Reverse stock split
37. A forecasting approach that involves aggregating the individual company forecasts of analysts into industry fore-casts - and finally into macroeconomic forecasts.
Classical growth theory
Perfect collinearity
Credit risk or default risk
Bottom-up forecasting approach
38. 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
Creditworthiness
Days of sales outstanding (DSO)
Empirical probability
39. A matrix or square array whoseentries are covariances; also known as a variance-covariance matrix.
Risk-neutral valuation
Equity
Covariance matrix
Owners' equity
40. An operating segment or one level below an operating segment (referred to as a component) .
Rate-of-return regulation
Maturity premium
Reporting unit
Intangible assets
41. The ability to react and adapt to financial adversities and opportunities.
Liquidity risk
Time-series data
Law of one price
Financial flexibility
42. Activities that are part of the day-to-day business functioning of an entity - such as selling inven tory and providing services.
Reviewed fmancial statements
Operating activities
Company share-related factors
Liruit down
43. The rate of return that must be met fora project to be accepted.
Agency relationships
Financial futures
Hurdle rate
Agency problem - or principal-agent problem
44. Accounting method in which the only relevant transactions for the financial statements are those that involve cash.
Cash basis
Income tax paid
Free cash flow hypothesis
Noncurrent assets
45. A portfolio offering the highest expected return for a given level of risk as mea-sured by variance or standard deviation of return.
Gamma
Holder-of-record date
Efficient portfolio
Valuation ratios
46. 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.
Corporation
Minority interest (noncontrolling interest)
Deregulation
Tender offer
47. Uncertainty with respect to the quantity of goods and services that a company is able to sell and the price it is able to achieve; the risk related to the uncertainty of revenues.
Time-period bias
Performance appraisal
Sales risk
Frequency polygon
48. 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
Accounts receivable turnover
Dispersion
Gains
49. A comparison portfolio; a point of refer-ence or comparison.
Bottom-up investing
Regression coefficients
Cash price or spot price
Benchmark
50. The normal density with mean equal to 0 and standard deviation (0') equal to l.
Nonlinear relation
Standard normal distribution (or unit normal distribu-tion)
Stock options (stock option grants)
Residual income model (RIM) (also discounted ahnormal earnings model or Edwards-Bell-Ohlson model)