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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.
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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. An exchange rate is deter-mined by demand and supply with no direct inter-vention in the foreign exchange market by the central bank.
Segment turnover
Money market
Exercise price (strike price - striking price - or strike)
Flexible exchange rate
2. The naturalloga-rithm of 1 plus the holding period return - or equivalently - the natural logarithm of the ending price over the beginning price.
Scatter plot
Present value of growth opportunities (or value of growth)
Qualitative dependent variables
Continuously compounded return
3. A factor related to the econ-omy - such as the inflation rate - industrial produc-tion - or economic sector membership. acroeconomic factor model A multifac tor model in which the factors are surprises in macroeco-nomic variables that significan tly
Currency option
Macroeconomic factor
Monitoring costs
Forward dividend yield
4. Factors that affect the average returns of a large number of different assets.
Zero-cost collar
Target semivariance
Days of inventory on hand (DOH)
Systematic factors
5. The part of the execution step of the portfolio management process that involves the implementation of port-folio decisions by trading desks.
Portfolio implementation problem
Market risk premium
Market risk
Market rate
6. Investing on the basis of dif-ferential expectations.
Debt rating approach
Lower bound
Vertical common-size analysis
Expectational arbitrage
7. The most recent quarterly dividend multiplied by four.
Dividend rate
Capitalized cash flow model (method)
Cash flow at risk (CFAR)
Systematic factors
8. A basis for stating an annual yield that annualizes a semiannual yield by dou-bling it.
Tree diagram
Agency costs of equity
Brokerage
Bond-equivalent basis
9. The characteristic of minimum-variance frontiers that they are sensitive to small changes in inputs.
Stress testing
Instability in the minimum-variance frontier
Breusch-Pagan test
Capture hypothesis
10. A bank commitment to extend credit up to a pre-specified amount; the commitment is considered a short-term liability and is usually in effect for 364 days (one day short of a full year).
Index option
Interest rate collar
Committed lines of credit
Breakup value or private market value
11. The present value of an investment's cash inflows (benefits) minus the present value of its cash outflows (costs).
Net present value (NPV)
Impairment of capital rule
Derivative
Bernoulli trial
12. Interest earned but not yet paid.
Accrued interest
Net asset balance sheet exposure
Cherry-picking
Accumulated depreciation
13. A reduction in the number of shares outstanding with a corresponding increase in share price - but no change to the company's underlying fundamentals.
Shark repellents
Volatility
Factor sensitivity (also factor betas or factor loadings)
Reverse stock split
14. An approach to valuation that involves using a price multiple to evaluate whether an asset is relatively fairly valued - rela-tively undervalued - or relatively overvalued when compared to a benchmark value of the multiple.
Method of comparables
Minority active investments
Empirical probability
Vested benefit obligation
15. A measure of correlation applied to ranked data.
Break point
Spearman rank correlation coefficient
Versioning
Total invested capital
16. The fixed rate at which the holder of an interest rate option can buy or sell the underlying.
Contango
Free cash flow
Exercise rate or strike rate
Bond yield plus risk premium approach
17. With reference to events - the propertythat the probability of one event occurringdepends on (is related to) the occurrence ofanother event.
Mesokurtic
Dependent
Contingent consideration
Current assets - or liquid assets
18. The positive square root of the sample variance.
Variable costs
Unbilled revenue (accrued revenue)
Sample standard deviation
Winsorized mean
19. A transaction whereby the target company management team converts the target to a privately held company by using heavy borrowing to finance the purchase of the target company's outstanding shares.
Diminishing balance method
Exercise date
Leveraged buyout (LBO)
Sampling plan
20. A method for accounting forthe effect of convertible securities on earnings pershare (EPS) that specifies what EPS would havebeen if the convertible securities had been con-verted at the beginning of the period - taking account of the effects of conv
Initial margin requirement
Direct f'mancing lease
If-converted method
Noncurrent assets
21. The market value of a swap.
Replacement value
Spearman rank correlation coefficient
Offsetting
Du Pont analysis
22. An option that gives the holder the right to buy an underlying asset from another party at a fixed price over a specific period of time.
ackwardation
Initial public offering (IPO)
Buy-side analysts
Call
23. A stage of growth in which a company typically enjoys rapidly expanding markets - high profit margins - and an abnormally high growth rate in earnings per share.
Long-term equity anticipatory securities (LEAPS)
Correlation analysis
Organic growth
Growth phase
24. The expected value of a stated event given that another event has occurred.
Cost of debt
Gamma
Conditional expected value
Nonconventional cash flow
25. Nonconvertible - noncallable preferred stock with a specified divi-dend rate that has a claim on earnings senior to the claim of common stock - and no maturity date.
Contribution margin
U.S. GAAP and uniting of interests under IFRS
Pure-play method
Fixed-rate perpetual preferred stock
26. An option strategy that combines a bull spread and a bear spread having two differentexercise prices - which produces a risk-free payoffof the difference in the exercise prices.
Box spread
Abandonment option
Fixed-rate perpetual preferred stock
Macaulay duration
27. When a company is acquired and the purchase price is less than the fai r value of the net assets. The current treatment of the excess of fair value over the purchase price is diffe re t under IFRS and U.S. CAAP. The excess is never accounted for as n
Bargain purchase
Bond indentnre
Forward price or forward rate
Minimum-variance portfolio
28. Method of accounting in which the effect of transactions on financial condition and income are recorded when they occur - not when they are settled in cash.
Capped swap
Time value decay
Yield to maturity
Accrual basis
29. Selling a product in slightly altered forms to different groups of consumers.
Time-period bias
Versioning
Agency costs of equity
Income tax recoverable
30. A continuous - symmetric prob-ability distribution that is completely described by its mean and its variance.
Normal distribution
Partial regression coefficients or partial slope coeffi-cients
Spin-off
Perfect collinearity
31. An activity ratio calculated as revenue divided by average total assets.
Carrying amount (book value)
Multivariate distribution
Total asset turnover
Financial analysis
32. A merger in which the company being purchased becomes a subsidiary of the purchaser.
Arbitrage opportunity
Subsidiary merger
Continuous random variable
Treasury shares
33. A bias caused by using information that was not available on the test date.
Opportunity set
Look-ahead bias
Designated fair value instruments
Index amortizing swap
34. Segment profit (loss) divided by seg-ment assets.
Segment ROA
Add-on interest
Compounding
Traditional efficient markets formulation
35. The first date that a share trades without (i.e. - 'ex') the dividend.
Subjective probability
Probability function
Accrual basis
Ex-dividend date
36. A swaption that allows the holder to enter into a swap as the fixed-rate payer and floating-rate receiver.
Payer swaption
Market share test
Normal contango
Trust receipt arrangement
37. The sample autocorrela-tions of the residuals.
Residual autocorrelations
Net operating profit less adjusted taxes - or NOPLAT
Lessor
Economic value added (EVA)
38. 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.
Fundamental factor models
Financial distress
Liquidity
Defensive interval ratio
39. An amount or percentage deducted from the value of an owner-ship interest to reflect the relative absence ofmarketability.
Discount for lack of marketability
VISibility
Unconditional heteroskedasticity
Roy's safety first criterion
40. An option in which the underlying is a bond; primarily traded in over-the-counter markets.
Bond option
Accrued interest
Elasticity
Active strategy
41. The time between settlement dates.
Likelibood
Growth investors
Settlement period
Deferred tax assets
42. The risk of a change in value of a n asset or liability denomi-nated in a foreign currency due to a change in exchange rates.
Exposure to foreign exchange risk
Likelibood
Transition phase
Flotation cost
43. A time series regressed on its own past values - in which the independent vari-able is a lagged value of the dependent variable.
Autoregressive (AR) model
Bond indentnre
Residual loss
Inflation premium
44. 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.
Direct write-off method
Statement of cash flows (cash flow statement)
Currency option
Corporation
45. Deliberate activity aimed at influencing reporting earnings numbers - often with the goal of placing management in a favorable light; the opportunistic use of accruals to manage earnings.
Inverse price ratio
Tracking error
Earnings management activity
Investing activities
46. Dummy variables used as dependent variables rather than as inde-pendent variables.
Nonearning assets
Momentum indicators
Qualitative dependent variables
Free cash flow method
47. A list of accounts used in an entity's accounting system.
Chart of accounts
Overnight index swap (OIS)
Cash settlement
Value investors
48. Very liquid short-tenn investments - usually maturing in 90 days or less.
Cash equivalents
Growth accounting
Interquartile range
Platykurtic
49. Income approach that estimates the value of all intangible assets of the business by capitalizing future earnings in excess of the estimated return requirements associated with working capital and fixed assets.
Weighted mean
Outcome
Number of days of inventory
Residual income method (or excess earnings method)
50. Company growth in output or sales that is achieved by making investments internally (i.e. - excludes growth achieved through mergers and acquisitions).
Variance
Organic growth
Conditional expected value
Allowance for bad debts
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