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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. Cannibalization occurs when an investment takes customers and sales away from another part of the company.
Historical cost
Cannibalization
Acquisition
Heteroskedasticity-consistent standard errors
2. A feature of futures markets in which futures prices provide valuable information about the price of the underlying asset.
Cumulative relative frequency
Interval
Price discovery
Protective put
3. A profitabili ty ratio calcu-lated as EBIT divided by the sum of short-and long-te debt and equi ty.
Sales returns and allowances
Return on total capital
Long
American
4. 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.
Justified (fundamental)
Return on assets (ROA)
Investment strategy
Partnership
5. The graphical representation of a model of asset price dynamics in which - at each period - the asset moves up wi t probability p or down with probability (I - p).
Binomial tree
Time-series data
Dividend discount model based approach
Unconditional heteroskedasticity
6. The return on a portfolio minus the return on the portfolio's benchmark.
Floor
Qualitative dependent variables
Cherry-picking
Active return
7. The average rate of return in excess of the risk-free rate.
Logit model
Reorganization
Bundling
Mean excess return
8. 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.
Probit model
Sample selection bias
Capitalized inventory costs
Equity risk premium
9. A number between - 1 and + 1 that measures the co-movement (linear association) between two random variables.
Correlation
Cap
Friendly transaction
Rho
10. 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.
Net liability balance sheet exposure
Debt incurrence test
Present value (PV)
Cost-of-service regulation
11. The slope of the capital market line - indicating the market risk premium for each unit of market risk.
Compiled f'mancial statements
Market price of risk
Unconditional probability (or marginal probability)
Serially correlated
12. A series of put options on an interest rate - with each option expiring at the date on which the floating loan rate will be reset - and with each option having the same exercise rate. A floor in general can have an underlying other than the interest
Tie-in sales
Stress testing
Interest rate floor or floor
Covariance matrix
13. A hypothesis concern-ing pricing behavior that holds that even though there are only a few firms in an industry - they are forced to price their products more or less com-petitively because of the ease of entry by outsiders. The key aspect of a conte
Leveraged buyout (LBO)
Securities Exchange Act of 1934
Cost of carry model
Theory of contestable markets
14. The buyer of a derivative contract. Also refers to the position of owning a derivative.
Growth phase
Long
Method based on forecasted fundamentals
Installment
15. An option in which the asset underlying the futures is a commodity - such as oil - gold - wheat - or soybeans.
Present (price) value of a basis point (PVBP)
Captive rmance subsidiary
Realizable value (settlement value)
Commodity option
16. 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
Breusch-Pagan test
Generalized least squares
Defined-contribution pension plans
Financial reporting quality
17. The quality of being relatively unaffected by a violation of assumptions.
Production-flexibility
Liruit down
Robust
Debt-to-capital ratio
18. The portfolio with the each given level of minimum variance for expected return.
Exchange ratio
Passive strategy
Minimum-variance portfolio
Geometric mean
19. The assumption of equal priorprobabilities.
Standardizing
Value at risk (VAR)
Diffuse prior
Present value model or discounted cash flow model
20. A company's profits on its usual business activities before deducting taxes.
Discount interest
Markowitz decision rule
Macroeconomic factor
Operating profit (operating income)
21. The estimated fair value of the price multiple - usually based on fore-casted fundamentals or comparables.
Leveraged buyout (LBO)
Justified price multiple (or warranted price multiple or intrinsic price multiple)
Direct debit program
Enterprise value (EV)
22. Approach that values a private company based on the values of the underlying assets of the entity less the value of any related liabilities.
Asset-based approach
Time series
Future value (FV)
Financial reporting quality
23. A minimum level of cash to be held available-estimated in advance and adjusted for known funds transfers - seasonality - or other factors.
Single-step format
Multiple linear regression model
Target balance
Bull spread
24. The absorption of one company by another; two companies become one entity and one or both of the pre-merger companies ceases to exist as a separate entity.
First-differencing
Out-of-sample forecast errors
Portfolio implementation problem
Merger
25. The sale by a foreign firm of exports at a lower price than the cost of production.
Cost of debt
Return on invested capital (ROIC)
Hmnan capital
Dumping
26. A transaction executed inthe foreign exchange market in which a currencyis purchased (sold) and a forward contract is sold(purchased) to lock in the exchange rate forfuture delivery of the currency. This transactionshould earn the risk-free rate of t
Free cash flow to equity model
Cumulative distribution function
Covered interest arbitrage
Basis point value (BPV)
27. Observations over individual units at a point in time - as opposed to time-series data.
Cross-sectional data
Amortization
Historical exchange rates
Income
28. The difference between the market price of the option and its intrinsic value - determined by the uncertainty of the underlying over the remaining life of the option.
Special purpose entity (special purpose vehicle or variable interest entity)
Time value or speculative value
Equity risk premium
Earnings yield
29. With reference to statistical infer-ence - the subdivision dealing with the testing ofhypotheses about one or more populations.
Total probability rule for expected value
White sqnire
Clientele effect
Hypothesis testing
30. Observations that are depen-dent on each other.
Paired observations
Anticipation stock
Adjusted present value (APV)
Interval scale
31. The relative price of foreign-made goods and services to U.S. -made goods and services.
Mutually exclusive events
Sample
Real exchange rate
Multiplication rule for probabilities
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.
Face value (also principal - par value - stated value - or maturity value)
Capital asset pricing model (CAPM)
Kurtosis
Contingent consideration
33. The currency of the country where a company is located.
Percentage-of-completion
Local currency
Discount rate
Liruit up
34. A company that has similar business risk; usually in the same industry and preferably with a single line of business.
Exercise or exercising the option
Dividend payout ratio
Probability distribution
omparable company
35. An investment decision rule that accepts projects or investments for which the IRR is greater than the opportunity cost of capital.
IRR rule
Installment
Null hypothesis
Bayes' formula
36. The property of having a constantvariance; refers to an error term that is constantacross observations.
Homoskedasticity
Asset beta
Payment date
Designated fair value instruments
37. A trend in which the dependent vari-able changes at a constant rate with time.
Automated Clearing House
Degree of financial leverage (DFL)
Exit price
Linear trend
38. A model of stock valuation that views intrinsic value of stock as the sum of book value per share plus the present value of the stock's expected future residual income per share.
Definition of value (or standard of value)
Residual income model (RIM) (also discounted ahnormal earnings model or Edwards-Bell-Ohlson model)
Exp ected holding-period return
Historical simulation (or back simulation)
39. The condition in futures markets in which futures prices are higher than expected spot prices.
Earnings game
Synthetic call
Momentum indicators
Normal contango
40. A wholly-owned sub-sidiary of a company that is established to provide financing of the sales of the parent company.
Root mean square(l er ror (RMSE)
Combination
Captive rmance subsidiary
Commercial paper
41. Instruments that payinterest as the difference between the amountborrowed and the amount paid back.
Financing activities
Designated fair value instruments
Closeout netting
Pure discount instruments
42. Accounting method in which the only relevant transactions for the financial statements are those that involve cash.
Cash basis
Share-the-gains - share-the-pains theory
Legislative and regulatory risk
Stock grants
43. The differ-ence between net operating assets at the end and the beginning of the period.
Stock purchase
Quick ratio - or acid test ratio
Minority passive investments (passive investments)
Balance-sheet-based aggregate accruals
44. The currency of the primary economic environment in which an entity operates.
Realizable value (settlement value)
Bootstrapping earnings
Other receivables
Functional currency
45. A result in probability theory stating that inconsistent probabilities create profit opportunities.
Compiled f'mancial statements
Guideline public companies
Dutch Book theorem
Production-flexibility
46. The restatement of financial statement items using a common denominator or reference item that allows one to identify trends and major differences; an example is an income statement in which all items are expressed as a percent of revenue.
Common-size analysis
Operating risk
Data mining
Corporation
47. A finite set of level sequential cash flows.
Rejection point (or critical value)
Annuity
Spread
Capital rationing
48. The sum of the observations divided by the number of observations.
Centralized risk management or companywide risk management
Automated Clearing House
Arithmetic mean
Zero-cost collar
49. A loan in which the borrower receives a sum of money at the start and pays back the entire amount with interest in a single pay-ment at maturity.
Linear regression
Binomial random variable
Treasury stock method
Single-payment loan
50. Observations of a variable over time.
Covariance stationary
Leptokurtic
Full price
Time-series data