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Test your basic knowledge |
CFA Level2 Vocab
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Study First
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. A procedure by which a population is divided into subpopulations (strata) based on one or more classification criteria. Sim-ple random samples are then drawn from each stratum in sizes proportional to the relative size of each stratum in the populati
PEG
Box spread
Flotation cost
Stratified random sampling
2. The lowest possible value of an option.
Lower bound
Degree of financial leverage (DFL)
Periodic rate
Stratified random sampling
3. The hypothesis accepted when the null hypothesis is rejected.
Alternative hypothesis
NTM P/E
Greenmail
Active investment managers
4. As used in this book - the use of a spreadsheet in executing a dividend discount model valuation - or other present value model valuation.
Exchange rate
Operations risk or operational risk
Spreadsheet modeling
Analysis of variance (ANOVA)
5. A theory of economic growth that proposes that real CDP per person grows because technological change induces a level of saving and investment that makes capital per hour oflabor grow.
Neoclassical growth theory
Operating risk
Shortfall risk
Dividend payout ratio
6. The Eurodollar rate at which London banks lend dollars to other London banks; considered to be the best representative rate on a dollar borrowed by a private - high-quality borrower.
Lower bound
Relative valuation models
London Interbank Offer Rate (LIBOR)
Intergenerational data mining
7. Aka Harmonic mean.
Weighted harmonic mean
Full price
Normalized earnings per share (or normal earnings per share)
Reorganization
8. A depreciation method tHat allocates the cost of a long-lived asset based on-actual usage during the period .
Units-of-production method
Expectational arbitrage
Book value of equity (or book value)
Mark-ta-market
9. A pre-offer takeover defense mechanism that makes it prohibitively costly for an acquirer to take control of a target without the prior approval of the target's board of directors.
Active risk
Market share test
Poison pill
Deferred tax assets
10. For accounting purposes - the exchange rates that existed when the assets and liabilities were initially recorded.
Deregulation
Historical exchange rates
Centralization permits economies of scale and allows a company to use some of its risks to offset other risks.
Time value of money
11. A dividend payout pol-icy under which earnings in excess of the funds necessary to finance the equity portion of com-pany's capital budget are paid out in dividends.
Floor
Perpetuity
Residual dividend approach
Volatility
12. Management's focus on reporting earnings that meet consensus estimates.
Statistic
Earnings game
Residual income model (RIM) (also discounted ahnormal earnings model or Edwards-Bell-Ohlson model)
Liruit up
13. A synonym for robust standard errors.
Systematic factors
Economic profit
Cash equivalents
White-corrected standard errors
14. Revenue after adjustments (e.g. - for estimated returns or for amounts unlikely to be collected).
Measurement scales
Pecking order theory
Net revenue
Option
15. Observations that are depen-dent on each other.
ackwardation
Paired observations
Corporation
Out-of-the-money
16. The use of inven-tory as collateral for a loan; similar to a trust receipt arrangement except there is a third party (i.e. - a warehouse company) that supervises the inventory.
Objective probabilities
Warehouse receipt arrangement
Single-step format
Tie-in sales
17. The risk that a financial instrument cannot be purchased or sold without a significant concession in price due to the size of the market.
Acquisition
Winsorized mean
Net lender
Liquidity risk
18. 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.
Correlation analysis
Income tax payable
Residual income method (or excess earnings method)
Free cash flow hypothesis
19. Valuation approach that values an asset based on pricing multiples from sales of assets viewed as similar to the subject asset.
Specific identification method
Units-of-production method
Market approach
Free cash flow to the
20. The portfolio with the each given level of minimum variance for expected return.
Exit price
Minimum-variance portfolio
Creditworthiness
Treasury shares
21. A forecasting approach that involves aggregating the individual company forecasts of analysts into industry fore-casts - and finally into macroeconomic forecasts.
Centralization permits economies of scale and allows a company to use some of its risks to offset other risks.
Robust standard errors
Cross-product netting
Bottom-up forecasting approach
22. A forward contract to enter into a swap.
U.S. official reserves
Present value (PV)
Parameter instability
Forward swap
23. The relationship between the price of the underlying and an option's exercise price.
Moneyness
Operating risk
Trust receipt arrangement
Ope ating profit margin (operating margin)
24. A solvency ratio calculated as total debt divided by total shareholders' equity.
Real GDP per person
Discrete random variable
Debt-to-equity ratio
Financial distress
25. An extra return that compen-sates investors for the possibility that the borrower will fail to make a promised payment at the con-tracted time and in the contracted amount.
Spreadsheet modeling
Default risk premium
Goodwill
Capped swap
26. The ratio of cash dividends paid to earnings for a period.
Unearned revenue (deferred revenue)
Pooling of interests accounting method
Market share test
Dividend payout ratio
27. Regulation that seeks to keep the rate of return in the industry at a com-petitive level by not allowing excessive prices to be charged.
Plain vanilla swap
Swap
Corporate raider
Rate-of-return regulation
28. An extra return that compensates investors for the increased sensitivity of the mar-ket value of debt to a change in market interest rates as maturity is extended.
Sunk cost
Noncurrent assets
Two-sided hypothesis test (or two-tailed hypothesis test)
Maturity premium
29. 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.
Degrees of freedom (df)
Corporation
Hedging
Direct format (direct method)
30. 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
Reviewed fmancial statements
Real options
Panel data
31. An estimate of the cost of common equity that is produced by summing the before-tax cost of debt and a risk premium that captures the additional yield on a company's stock relative to its bonds. The addi-tional yield is often estimated using historic
Optimizer
Net operating profit less adjusted taxes - or NOPLAT
Bootstrapping earnings
Bond yield plus risk premium approach
32. The periodic investment of a fixed amount of money.
Inventory turnover
Carried interest
Cost averaging
Cost of equity
33. The day that options are granted to employees; usually the date that compensation expense is measured if both the number of shares and option price are known.
A priori probability
Accrual basis
Grant date
Serially correlated
34. A calculation of yield that is annualized using the ratio of 365 to the number of days to maturity. Bond equivalent yield allows for the restatement and comparison of securities with different compounding periods.
Private sector surplus or deficit
Bond equivalent yield
Tax base (tax basis)
Bottom-up investing
35. With reference to investment selection processes - an approach that starts with macro selection (i.e. - identifying attractive geo-graphic segments andVor industry segments) and then addresses selection 0 the most attractive investments within those
Bottom-up analysis
Bargain purchase
Top-down analysis
Noncurrent
36. Total company valme (the market value of debt - common equity - and preferred equity) minus the value of cash and investments.
Enterprise value (EV)
Floating-rate loan
Price relative
Synthetic put
37. A measure of VAR equivalentto the analytical method bu t that refers to the use of delta to estimate the option's price sensitivity.
Interest rate collar
Target semideviation
Delta-normal method
Neoclassical growth theory
38. The principle that dol-lar amounts indexed at the same point in time are additive.
Cash flow additivity principle
Creditworthiness
Breakeven point
Positive serial correlation
39. Temporary differ-ences that result in a red uction of or deduction from taxal:J e income in a future period when the balance sheet item is n~ covered or settled.
Historical cost
Correlation
Complement
Deductible temporary differences
40. In the context of corporate finance - leverage refers to the use of fixed costs within a company's cost structure. Fixed costs that are operating costs (such as depreciation or rent) create operating leverage. Fixed costs that are financial costs (su
Clientele effect
Leverage
Growth phase
Centralized risk management or companywide risk management
41. The process of selecting - evaluat-ing - and interpreting financial data in order to formulate an assessment of a company's present and future financial condition and performance.
Financial analysis
Accrued interest
Minimum-variance portfolio
Bernoulli trial
42. FRA A contract in which the initial value is intentionally set at a value other than zero and therefore requires a cash payment at the start from one party to the other.
Debt rating approach
Off-market
Liquidity discount
Focus
43. An investment decision rule that states that an investment should be undertaken if its NPV is positive but not undertaken if its NPV is negative.
NPV rule
Anticipation stock
Nondeliverable forwards (NDFs)
Ex-dividend date
44. Shareholders' equity (total assets minus total liabilities) minus the value of preferred stock; common shareholders' equity.
Estimate
Simulation trial
Delta-normal method
Book value of equity (or book value)
45. A function that specifies the probability that the random variable takes on a specific value.
Reputational risk
Payables turnover
Sample variance
Probability function
46. A liquidity ratio calculated as current assets divided by current liabilities.
Call
Book value equity per share
Logit model
Current ratio
47. Diminishment in value as a result of car-rying (book) value exceeding fair value and/or recoverable value.
Impairment
Leveraged buyout (LBO)
Fair value
Weighted average cost method
48. A balance sheet asset that arises when an excess amount is paid for income taxes relative to accounting profit. The taxable income is higher than accounting profit and income tax payable exceeds tax expense. The company expects to recove r the differ
Exercise rate or strike rate
Deferred tax assets
Cost of carry
Overnight index swap (OIS)
49. Under U.S. GAAP - a measure used in estimating a defined-benefit pen-sion plan's liabilities - defined as 'the actuarial present value as of a date of all benefits attributed by the pension benefit formula to employee ser-vice rendered prior to that
Projected benefit obligation
Elasticity
Liruit up
Market risk premium
50. Observations of a variable over time.
Sales
Futures contract
Modified duration
Time-series data