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Test your basic knowledge |
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. 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.
Cnsistent
Terminal share price
Net operating profit less adjusted taxes - or NOPLAT
Normal distribution
2. Amount that must be set aside each period to have $1 at some future point in time.
Dilution
Priced risk
Sinking fund factor
Enterprise value multiple
3. The contribution to active risk squared resulting from the portfolio's different-than-benchmark exposures relative to factors specified in the risk model.
Active factor risk
Top-down investing
Protective put
Interest rate parity
4. Segment liabilities divided by segment assets.
Platykurtic
Total return swap
Segment debt ratio
Risk budgeting
5. A profitability ratio calcu-lated as net income divided by average sharehold-ers' equity.
Node
Semilogarithmic
Return on equity (ROE)
Capitalized inventory costs
6. The hypothesis that higher debt levels discipline managers by forcing them to make fixed debt service payments and by reducing the company's free cash flow.
LIFO reserve
Free cash flow hypothesis
Stratified random sampling
Deep out of the money
7. Segment profit (loss) divided by segment revenue.
Parameter instability
Segment margin
Debt-to-assets ratio
Alpha (or abnormal return)
8. Numbers produced by random number generators.
Matching strategy
Pseudo-random numbers
Financial futures
Positive serial correlation
9. 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.
First-differencing
Warehouse receipt arrangement
Target semideviation
Ex-dividend date
10. With reference to an interval of grouped data - the number of observations in the interval divided by the total number of observa-tions in the sample.
Reputational risk
Relative frequency
Perpetuity
Du Pont analysis
11. The sensitivity of the option price to the risk-free rate.
Continuous time
Rho
Other comprehensive income
Portfolio performance attribution
12. Potential future payments to the seller that are contingent on the achieve-ment of certain agreed on occurrences.
Purchasing power gain
Safety-first Rules
Contingent consideration
Return on invested capital (ROIC)
13. A measure of sensitivity; the incremental change in one variable with respect to an incre-mental change in another variable.
Priced risk
Alternative hypothesis
Direct format (direct method)
Elasticity
14. A measure of central tendency computed by taking the nth root of the product of n non-negative values.
Trimmed mean
Geometric mean
Free cash flow to the
Grant date
15. Hirschman Index A measure of rna ket concentration that is calculated by summing the squared mar et shares for competing companies in an industry; high HHI readings or mergers that would result in large HHI increases are more likely to result in regu
Deferred tax liabilities
Recapture premium
Her rmdahl-
Earnings management activity
16. A financial instrument that gives one party the right - but not the obligation - to buy or sell an underlying asset from or to another party at a fixed price over a specific period of time. Also referred to as contingent claims.
Flip-in pill
Abandonment option
Option
Free cash flow to the
17. A purchase involving a buyer having essentially no material synergies with the target (e.g. - the purchase of a private company by a company in an unrelated industry or by a private equity firm would typically be a financial transaction) .
Random walk
Creditworthiness
Robust standard errors
Financial transaction
18. The expected total e b urn on an asset over a stated olding period; for stocks - the sum of tne expected dividend yield and the expected price appreciation over the holding period.
Exp ected holding-period return
Initial margin requirement
Tenor
Pairs arbitrage
19. A pre-offer takeover defense mecha-nism that gives target company bondholders the right to sell their bonds back to the target at a pre-specified redemption price - typically at or above par value; this defense increases the need for cash and raises
Bonding costs
Deep out of the money
Cost averaging
Poison puts
20. A financial statement that reconciles beginning-of-period and end-of-period balance sheet values of cash; provides information about an entity's cash inflows and cash outflows as they pertain to oper-ating - investing - and financing activities.
Statement of cash flows (cash flow statement)
Economic value added (EVA)
Bayes' formula
Interval scale
21. The actual value of a variable minus its pre-dicted (or expected) value.
Company fundamental factors
Surprise
Equity method
Normal contango
22. Segment profit (loss) divided by seg-ment assets.
Trend
Market-oriented investors
Segment ROA
Premise of value
23. The earnings growth rate in a company's mature phase; an earnings growth rate that can be sustained long term.
Sandwich spread
Mature growth rate
Synthetic index fund
Mesokurtic
24. 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.
Poison puts
Statistical factor models
Dividend payout ratio
Standard deviation
25. The tendency for the winner in cer-tain competitive bidding situations to overpay - whether because of overestimation of intrinsic value - emotion - or information asymmetries.
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26. A dividend yield based on the anticipated dividend during the next 12 months.
Forward dividend yield
Direct format (direct method)
Degrees of freedom (df)
Business risk
27. The extent to which a company can effect - through the use of debt - a propor-tional change in the re turn on common equity that is greater than a given proportional change in operating income; also - short for the financial leverage ratio.
Financial leverage
Investment value
Simulation trial
Number of days of payables
28. P/E calculated on the basis of a forecast of EPS; a stock's current price divided by next year's expected earnings.
Forward P/E (also leading P/E or prospective P/E)
Other post-employment benefits
Zero-cost collar
Classified balance sheet
29. A variation of the monetary/ nonmonetary translation method that requires not only monetary assets and liabilities - but also nonmonetary assets and liabilities that are mea-sured at their current value on the balance sheet date to be translated at t
Random number generator
Temporal method
Monte
Prior transaction method
30. An event or piece of information that causes the marketplace to re-evaluate the prospects of a company.
Histogram
Expiration date
Catalyst
Relative strength (RSTR) indicators
31. The income tax expected to be recovered - from the taxing authority - on the basis of taxable income. It is a recovery of previ-ously remitted taxes or future taxes owed by the company.
Bond indentnre
Income tax recoverable
Effective annual yield (EAY)
Sharpe's measure
32. Describes a distribution that is more peaked than a normal distribution.
Leptokurtic
Solvency ratios
Fundamental beta
Venturers
33. A bias caused by using information that was not available on the test date.
Look-ahead bias
Contra account
Top-down investing
Book value equity per share
34. A swap in which the floating payments have a lower limit.
Winsorized mean
Stock options (stock option grants)
Recapture premium
Floored swap
35. The risk associated with the pos-sibility that a payment due at a later date will not be made.
Potential credit risk
Flip-over pill
Index amortizing swap
Pure-play method
36. With reference to statistical inference - astatement about one or more populations.
Stated annual interest rate or quoted interest rate
Dilution
Hypothesis
Credit analysis
37. An intangible that can beacquired singly and is typically linked to specificrights or privileges having finite benefit periods(e.g. - a patent or trademark).
Identifiable intangible
Intergenerational data mining
Histogram
Delta
38. The risk that govern-mental laws and regulations directly or indirectly affecting a company's operations will change with potentially severe adverse effects on the com-pany's continued profitabiliny and even its long-term sustainability.
Sample skewness
Government sector surplus or deficit
Legislative and regulatory risk
Credit VAR - default VAR - or credit at risk
39. The discount possibly applied by the market to the stock of a company operating in multiple - unrelated businesses.
Bill-and-hold basis
Price momentum
Conglomerate discount
Single-step format
40. In reference to short-term cash man-agement - an investment strategy characterized by monitoring and attempting to capitalize on mar-ket conditions to optimize the risk and return relationship of short-term investments.
Stock-out losses
Securities offering
Active strategy
Screening
41. The margin requirementon the first day of a transaction as well as on anyday in which additional margin funds must be deposited.
Initial margin requirement
Income tax payable
Liquidation
Drag on li
42. A method of revenue recog-nition in which the seller does not report anyprofit until the cash amounts paid by the buyer-including principal and interest on any financingfrom the seller-are greater than all the seller'scosts for the merchandise sold.
Straight-line method
Cost recovery method
Fiduciary call
Adjusted R2
43. A method of identifying the basic elements of the overall capitalization rate.
Basic earnings per share (EPS)
Target company - or target
Money-weighted rate of return
Built-up method
44. A variation of the market approach; establishes a value estimate based on the observed multiples from trading activity in the shares of public companies viewed as reasonably comparable to the subject private company.
Guideline public company method
Cost of equity
Matching principle
Horizontal common-size analysis
45. 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
Opportunity cost
Cash ratio
Operating profit (operating income)
Defined-contribution pension plans
46. An arrangement whereby someone - an agent - acts on behalf of another per-son - the principal.
Earnings per share
Mark-ta-market
Buy-side analysts
Agency relationships
47. The residuals from a fitted time-series model within the sample period used to fit the model.
Investment constraints
Debit
Unexpected earnings (also earnings surprise)
In-sample forecast errors
48. The observation that P /Es tend to be high on depressed EPS at the bottom of a business cycle - and tend to be low on unusually high EPS at the top of a business cycle.
Indexing
LIFO layer liquidation (LIFO liquidation)
Molodovsky effect
Production-flexibility
49. A theory of regulatory behavior that holds that regulators must take account of the demands of three groups: legislators - who established and oversee the regulatory agency; firms in the regulated industry; and consumers of the regulated indus-try's
Vested benefit obligation
Conditional probability
Standard cost
Share-the-gains - share-the-pains theory
50. Assets used as benchmarks when applying the method of com parables to value an asset.
Inventory blanket lien
Leveraged buyout (LBO)
Comparables (comps - guideline assets - guideline com-panies)
Built-up method