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CFA Level2 Vocab
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certifications
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cfa
Instructions:
Answer 50 questions in 15 minutes.
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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 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.
Defensive interval ratio
Acquisition
Free cash flow method
Disbursement float
2. The ability to make additional investments in a project at some future time if the financial results are strong.
Growth option or expansion option
Portfolio possibilities curve
Infant-industry argument
Prepaid expense
3. The problem or issue of popu-lation regression parameters that have changed over time.
Number of days of inventory
Credit derivatives
Operating profit (operating income)
Parameter instability
4. Independent projects are projects whose cash flows are independent ofeach other.
Measure of location
After-tax cash flow (ATCF)
Operating cycle
Independent projects
5. Desired investment outcomes; includes risk objectives and return objectives.
Purchasing power parity
Profitability ratios
Investment objectives
Active strategy
6. A method for accounting for the effect of options (and warrants) on earnings per share (EPS) that specifies what EPS would have been if the options and warrants had been exercised and the company had used the pro-ceeds to repurchase common stock.
Earnings expectation management
Clean surplus relation
Income tax payable
Treasury stock method
7. Debt or equity financial assets bought with the inten-tion to sell them in the near term - usually less than three months; securities that a company intends to trade.
Trade-weighted index
Receiver swaption
Normal contango
Held-for-trading securities (trading securities)
8. The smallest level of significance at whichthe null hypothesis can be rejected; also called themarginal significance level.
P Value
First-order serial correlation
Balance-sheet-based aggregate accruals
Prior transaction method
9. A procedure used primarily in futures markets in which the parties to a contract settle the amount owed daily. Also known as the daily settlement.
Solvency
Straddle
Marking to market
Interest coverage
10. A trader who typically holds posi-tions open overnight.
Interest rate swap
Index amortizing swap
Activity ratios (asset utilization or operating efficiency ratios)
Position trader
11. Under U.S. GAAP -a special purpose entity structured to avoid consol-idation that must meet qualification criteria.
Qualifying special purpose entities
Equitizing cash
Degree of financial leverage (DFL)
Cannibalization
12. The date that a shareholderlisted on the corporation's books will be deemedto have ownership of the shares for purposes ofreceiving an upcoming dividend; two businessdays after the ex-dividend date.
Weighted mean
Total return swap
Holder-of-record date
Definition of value (or standard of value)
13. 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
Externality
Arrears swap
Tangible book value per share
Futures contract
14. A multifactor model In which statistical methods are applied to a set of historical returns to determine portfolios that best explain either historical return covariances or vanances.
Total probability rule for expected value
Normalized
Overnight index swap (OIS)
Statistical factor models
15. Resources controlled by an enterprise as a result of past events and from which future eco-nomic benefits to the enterprise are expected to flow.
Ratio spread
Giro system
Qualifying special purpose entities
Assets
16. The dollar amount of cash divi-dends paid during a period per share of common stock.
Incremental cash flow
Comprehensive income
Dividends per share
Long-term contract
17. Quantiles that divide a distribution into 100 equal parts.
Legal risk
Active investment managers
Percentiles
Free cash flow to the
18. The probabili ty that a confi-dence interval ind udes the unknown population parameter.
Yield beta
Stress testing
Degree of confidence
Method of comparables
19. The square root of the average squared forecast error; used to compare the out-of-sample forecasting perfor-mance of forecasting models.
Root mean square(l er ror (RMSE)
Capitalized inventory costs
Storage costs or carrying costs
Continuing residual income
20. An increment or premium to value associated with a controlling ownership interest in a company.
Allowance for bad debts
Control premium
Null hypothesis
Credit-linked notes
21. A financial covenant made in conjunction with existing debt that restricts a company's ability to incur additional debt at the same seniority based on one or more financial tests or conditions.
Generalized least squares
Break point
Debt incurrence test
Exp ected holding-period return
22. Heteroskedasticity of the error term that is not correlated with the values of the independent variable(s) in the regression.
Direct write-off method
Unconditional heteroskedasticity
Capital rationing
Greenmail
23. 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.
Statutory merger
Free cash flow method
Protective put
Interest rate option
24. A fUl !lction giving the probability of joint occurrences of values of stated random variables.
Positive serial correlation
Nonmonetary assets and liabilities
J oint probability function
Capital charge
25. The positive square root of semivari-ance (sometimes called semistandard deviation) .
Sales-type lease
Median
Cap
Semideviation
26. 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.
Payer swaption
Initial public offering (IPO)
Binomial random variable
Minority interest (noncontrolling interest)
27. An option contract that can be exercised at any time until its expiration date.
Type I error
Unlimited funds
American option
Partnership
28. A method of revenue recogni-tion in which the company does not recognize any revenue until the contract is completed; used par-ticularly in long-term construction contracts.
Exports
Total probability rule for expected value
Completed contract
Liruit down
29. 1) A contract on an interest rate - whereby at periodic payment dates - the writer of the cap pays the difference between the market interest rate and a specified cap rate if - and only if - this differ-ence is positive. This is equivalent to a strea
Stated rate (nominal rate or coupon rate)
Accrued expenses (accrued liabilities)
Market efficiency
Cap
30. A profitability ratio calculated as (net income - preferred divi-dends) divided by average common equity; equal to the return on equity ratio when no preferred equity is outstanding.
Return on common equity (ROCE)
Write-down
Expensed
Leading
31. The actual amount paid for income taxes in the period; not a provision - but the actual cash outflow.
Completed contract
Yield beta
Income tax paid
Gross income multiplier (GIM)
32. 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.
Net asset balance sheet exposure
Clearinghouse
Active specific risk or asset selection risk
Arbitrage portfolio
33. When assets trans-lated at the current exchange rate are greater in amount than liabilities translated at the current exchange rate. Assets exposed to translation gains or losses exceed the exposed liabilities.
Benchmark value of the multiple
Nondeliverable forwards (NDFs)
Reorganization
Net asset balance sheet exposure
34. A dollar deposited outside the United States.
Dynamic hedging
Roy's safety first criterion
Minority active investments
Eurodollar
35. An approach to investing that typically begins with macroeconomic forecasts.
Top-down investing
Inverse price ratio
Collar
Acquisition method
36. Observations through time on a single characteristic of multiple observational units.
Recapture premium
Panel data
Statistically significant
Treasury shares
37. 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.
Bootstrapping earnings
Benchmark value of the multiple
Unidentifiable intangible
Net exports
38. Agreements between the company as borrower and its creditors.
Noncurrent
Debt covenants
LIFO reserve
Theta
39. A rule explaining the expected value of a random vari-able in terms of expected values of the random variable conditional on mutually exclusive and exhaustive scenarios.
Amortization
Income tax paid
Total probability rule for expected value
Marketability discount
40. Financial statements in which all elements (accounts) are stated as a per-centage of a key figure such as revenue for an income statement or total assets for a balance sheet.
Common size statements
Historical method
Histogram
Duration
41. Serial correlation in which a positive error for one observation increases the chance of a positive error for another observation - and a negative error for one observation increases the chance of a negative error for another observation.
Warehouse receipt arrangement
LIFO method
Balance-sheet-based accruals ratio
Positive serial correlation
42. A transaction in exchange-listed deriva-tive markets in which a party re-enters the market to close out a position.
Minimum-variance portfolio
Breakeven point
Temporal method
Offsetting
43. Division ofnet operating income by an overall capitalization rate to arrive at market value.
Ordinary least squares (OLS)
Risk management
Deferred tax liabilities
Direct income capitalization approach
44. The return on an asset in excess of the asset's required rate of return; the risk-adjusted return.
Profitability ratios
Accounting profit (income before taxes or pretax income)
Alpha (or abnormal return)
Method of comparables
45. Method of valu-ing property based on recen t sales prices of simi-lar properties.
Interest rate floor or floor
Bootstrapping earnings
Direct sales-comparison approach
Ratio scales
46. A portfolio having factor sensitiv-ities that are matched to those of a benchmark or other portfolio.
Balance sheet ratios
Tracking portfolio
Warehouse receipt arrangement
Capitalized inventory costs
47. With respect to financial statement analy-sis - the ability of a company to fulfill its long-term obligations.
Operating profit (operating income)
After-tax equity reversion (ATER)
Solvency
Sampling distribution
48. Options that - if exercised - would result in the value received being worth more than the payment required to exercise.
Derivatives dealers
Cap
Poison pill
In-the-money
49. The yield to maturity on a basis that ignores compounding.
Bond-equivalent yield
Cash o£ fering
Futures exchange
VISibility
50. An approach for estimating a country's equity risk premium. The market rate of return is estimated as the sum of the dividend yield and the growth rate in dividends for a market index. Subtracting the risk-free rate of return from the estimated marke
Dividend discount model based approach
Molodovsky effect
Tracking error
Mean reversion
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