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CFA Level2 Vocab
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certifications
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Instructions:
Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
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1. The actual cash that would be avail-able to the company's investors after making all investments necessary to maintain the company as an ongoing en terprise (also referred to as free cash flow to the firm); the internally generated funds that can be
Asset-based approach
Tie-in sales
Free cash flow
Warehouse receipt arrangement
2. Sales minus the cost of sales ~.e . - the cost of goods sold for a manufactur-ing cOlp pany) .
Free cash flow method
Bill-and-hold basis
Gross profit (gross margin)
Transaction exposure
3. FIrm model A model of stock valuation that views the value of a firm as the pres-ent value of expected future free cash flows to the firm.
Financial flexibility
Logit model
Direct income capitalization approach
Free cash flow to the
4. A comparison of revenues with working capital to produce a measure that shows how efficiently working capital is employed.
Working capital turnover
Sector neutral
Multivariate normal distribution
Tracking risk
5. The set of assets available for investment.
Securities offering
Synthetic forward contract
Hurdle rate
Opportunity set
6. A set of observations on a variable's out-comes in different time periods.
Time series
Historical equity risk premium approach
Up transition probability
Continuing residual income
7. The most recent quarterly dividend multiplied by four.
Financial analysis
Income tax payable
Capital rationing
Dividend rate
8. A test in which the null hypothesis is rejected only if the evidence indicates that the population parameter is greater than (smaller than) eo- The alternative hypothesis also has one side.
One-sided hypothesis test (or one-tailed hypothesis test)
Dirty surplus items
Heteroskedasticity-consistent standard errors
Quintiles
9. Financial instru-ments that an entity chooses to measure at fairvalue per lAS 39 or SFAS 159. Generally - the elec-tion to use the fair value option is irrevocable.
Designated fair value instruments
Plain vanilla swap
Empirical probability
Outliers
10. Transactions that are denominated in a currency other than a com-pany's functional currency.
Direct write-off method
Offsetting
Special purpose entity (special purpose vehicle or variable interest entity)
Foreign currency transactions
11. Netting the market values of all derivative contracts between two parties to deter-mine one overall value owed by one party to another in the event of bankruptcy.
Closeout netting
Matrix pricing
Unconditional probability (or marginal probability)
omparable company
12. Making forecasts - estimates - or judgments about a larger group from a smaller group actually observed; using a sample statistic to infer the value of an unknown population parameter.
Safety stock
Bottom-up forecasting approach
Daily settlement
Statistical inference
13. Said of a sale in which proceeds are to be paid in installments over an extended period of time.
Instability in the minimum-variance frontier
Liquidity discount
Index amortizing swap
Installment
14. For accounting purposes - the spot exchange rate on the balance sheet date.
Objective probabilities
Revolving credit agreements
Current exchange rate
Price momentum
15. Earnings adjusted for nonrecur-ring - non-economic - or other unusual items to elim-inate anomalies andlor facilitate comparisons.
Spread
Earnings yield
Normalized earnings
Vertical analysis
16. A scheme of measuring differ-ences. The four types of measurement scales are nominal - ordinal - interval - and ratio.
Exit price
Mean
Net asset balance sheet exposure
Measurement scales
17. 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.
Vested benefits
Bond equivalent yield
Normalized earnings
Screening
18. A distribution that specifies the probabilities of a random variable's possible outcomes.
Pure-play method
Common-size analysis
Probability distribution
Sales
19. Aka 'Market efficiency. '
Rational efficient markets formulation
Mean-variance analysis
Earnings at risk (EAR)
Free cash flow to equity model
20. When a bankrupt company is allowed to enforce contracts that are favorable to it while walking away from contracts that are unfa-vorable to it.
Termination date
Stated annual interest rate or quoted interest rate
Expenses
Cherry-picking
21. Investments in which investors exert significant influence - but not con-trol - over the investee. Typically - the investor has 20 to 50 % ownership in the investee.
Treasury shares
Statistic
Minority active investments
Growth phase
22. An annuity having a first cash flow that is paid immediately.
Annuity due
Decentralized risk management
Cross-sectional analysis
Historical exchange rates
23. An approach to portfolio analysis using expected means - variances - and covariances of asset returns.
Mean-variance analysis
Financing activities
Measure of location
Sampling error
24. A depreciation method that allocates evenly the cost of a long-lived asset less its estimated residual value over the estimated useful life of the asset.
Straight-line method
Momentum indicators
Benchmark value of the multiple
Fixed-rate perpetual preferred stock
25. Interest earned but not yet paid.
Accrued interest
Units-of-production method
Exp ected holding-period return
Elasticity
26. Assets and liabili-ties that are not monetary assets and liabilities. Nonmonetary assets include inventory - fixed assets - and intangibles - and nonmonetary liabili-ties include deferred revenue.
Quick ratio - or acid test ratio
Nonmonetary assets and liabilities
Capital rationing
Crawling peg
27. A type of non-audited financial statements; typically provide an opinion letter with representations and assurances by the reviewing accountant that are less than those in audited financial statements.
Total asset turnover
Value
Reviewed fmancial statements
Exercise or exercising the option
28. 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.
Long
Proxy fight
Relative frequency
Stated annual interest rate or quoted interest rate
29. The pro-portion of the ownership of a subsidiary not held by the parent (controlling) company.
Return on assets (ROA)
Minority interest (noncontrolling interest)
Chain rule of forecasting
Going-concern value
30. A function giving the probability that a random variable is less than or equal to a specified value.
Yield spread
Cumulative distribution function
Discounted cash flow analysis
Bernoulli trial
31. Commercial and investmentbanks that make markets in derivatives.
Trade credit
Business risk
Derivatives dealers
Eurodollar
32. The money of other countries regardless of whether that money is in the form of notes - coins - or bank deposits.
Bernoulli trial
Foreign currency
ecurity market line (SML)
Model specification
33. A wholly-owned sub-sidiary of a company that is established to provide financing of the sales of the parent company.
Sensitivity analysis
Double-entry accounting
Proxy fight
Captive rmance subsidiary
34. The analysis of the strength of the linear relationship between two data series.
White sqnire
Centralization permits economies of scale and allows a company to use some of its risks to offset other risks.
Forward P/E (also leading P/E or prospective P/E)
Correlation analysis
35. Unsecured short-term corporate debt that is characterized by a single payment at maturity.
Joint venture
Commercial paper
Losses
Government sector surplus or deficit
36. The accounting principle that expenses should be recognized when the associ-ated revenue is recognized.
Efficient portfolio
One third rule
Voluntary export restraint
Matching principle
37. With reference to equity investors - investors who seek to invest in high-earnings-growth companies.
Index option
Growth investors
Convenience yield
Settlement price
38. A profitabili ty ratio calcu-lated as EBIT divided by the sum of short-and long-te debt and equi ty.
Time-period bias
PEG
Return on total capital
Commodity forward
39. The costs of holding an asset - generally a function of the physical char-acteristics of the underlying asset.
Price to sales
Dumping
Storage costs or carrying costs
Market efficiency
40. An average in which each observation is weighted by an index of its relative importance.
Relative frequency
Chart of accounts
Cash price or spot price
Weighted mean
41. A valuation ratio calculated as price per share divided by sales per share.
Accumulated benefit obligation
Skewed
Price to book value
Price to sales
42. With reference to the presen-tation of expenses in an income statement - the grouping together of expenses serving the same function - e.g. - all items that are costs of good sold.
Fiduciary call
Labor productivity
Grouping by function
Discount
43. The amount of money a buyer pays and seller receives to engage in an option transaction.
Probability distribution
Credit-linked notes
Securities offering
Option price - option premium - or premium
44. 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
Share-the-gains - share-the-pains theory
Stratified random sampling
Winsorized mean
Contango
45. The number of observations in a given interval (for grouped data) .
synunetric information
Priced risk
Absolute frequency
Real exchange rate
46. Bias that may result when failed or defunct companies are excluded from member-ship in a group.
Matching principle
Liquidity discount
Survivorship bias
Definition of value (or standard of value)
47. A minimum level of cash to be held available-estimated in advance and adjusted for known funds transfers - seasonality - or other factors.
Credit scoring model
Ordinary least squares (OLS)
Payment netting
Target balance
48. The minimum rate of return required by an investor to invest in an asset - given the asset's riskiness.
Lessee
Residual claim
Spread
Required rate of return
49. A measure of the sensitivity of a bond's yield to a general measure of bond yields in the market that is used to refine the hedge ratio.
Information ratio (IR)
Strategic transaction
Constant maturity treasury or
Yield beta
50. The sum of the real risk-free interest rate and the inflation premium.
Linear association
Nominal risk-free interest rate
Dividend payout policy
Orderly liquidation value
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