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CFA Level2 Vocab
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certifications
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cfa
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Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
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1. The difference between the fixed rate on an interest rate swap and the rate on a Trea-sury note with equivalent maturity; it reflects the general level of credit risk in the market.
Forward contract
Swap spread
Type I error
Days of sales outstanding (DSO)
2. Net operating income less debt service and less taxes payable on income from operations.
omparable company
Legislative and regulatory risk
Statement of retained earnings
After-tax cash flow (ATCF)
3. Net earnings avail-able to common shareholders (i.e. - net income minus preferred dividends) divided by the weighted average number of common shares out-standing during the period.
Impairment of capital rule
Unconditional probability (or marginal probability)
Normal distribution
Basic earnings per share (EPS)
4. A bond in which the amount received for delivering the bond is largest com-pared with the amount paid in the market for the bond.
Merger
Cheapest to deliver
Correlation analysis
Top-down investing
5. Ratios that measure a company's ability to generate profitable sales from its resources (assets).
Differentiation
Incremental cash flow
Profitability ratios
Accounts receivable turnover
6. A model that specifies an asset's value relative to the value of another asset.
Population standard deviation
Relative valuation models
Synthetic put
Ratio scales
7. An acceler-ated depreciation method that involves depreciat-ing the asset at double the straight-line rate. This rate is multiplied by the book value of the asset at the beginning of the period (a declining balance) to calculate depreciation expense.
Double declining balance depreciation
Current liabilities
Committed lines of credit
Single-payment loan
8. The annual return that an investor earns on a bond if the investor purchases the bond today and holds it until maturity.
Pairs arbitrage
Liquidity discount
Yield to maturity
Cash ratio
9. A dollar deposited outside the United States.
Eurodollar
Receiver swaption
Marking to market
Convenience yield
10. Amounts owed to the company from parties other than customers.
Cherry-picking
Credit scoring model
Other receivables
Efficient frontier
11. A value at or below which a stated fraction of the data lies.
Quantile (or fractile)
Organic growth
Forward contract
Strategic transaction
12. A contract that spans a number of accounting periods.
FIFO method
Portfolio performance attribution
Long-term contract
Pecking order theory
13. Describes a distribution that is more peaked than a normal distribution.
Debt incurrence test
Gross profit (gross margin)
Leptokurtic
Guideline transactions method
14. A range that has a given proba-bility that it will contain the population parameter it is intended to estimate.
Relative strength (RSTR) indicators
Confidence interval
Pull on liquidity
Gross profit (gross margin)
15. A test that is not concerned with a parameter - or that makes minimal assumptions about the population from which a sam Ie comes.
Nonparametric test
Mutually exclusive events
Total probability rule for expected value
Long-term debt-ta-assets ratio
16. A model for pncmg futurescontracts in which the futures price is determinedby adding the cost of carry to the spot price.
Net operating cycle
Horizontal analysis
Cost of carry model
Discounted cash flow analysis
17. In the context of the weighted average cost of capital (WACC) - a break point is the amount of capital at which the cost of one or more of the sources of capital changes - leading to a change in the WACC.
Capitalized inventory costs
Nominal rate
Sales
Break point
18. The currency of the primary economic environment in which an entity operates.
omparable company
Rational efficient markets formulation
Functional currency
FIFO method
19. Options that - if exercised - would result in the value received being worth more than the payment required to exercise.
In-the-money
Surprise
Operating return on assets (operating
Active strategy
20. The duration without dividing by 1 plus the bond's yield to maturity. The term - named for one of the economists who first derived it - is used to distinguish the calculation from mod-ified duration. See also modified duration.
Capital structure
Platykurtic
Money market yield (or CD equivalent yield
Macaulay duration
21. The yield to maturity on a basis that ignores compounding.
Bond-equivalent yield
Covered interest arbitrage
Bond option
Mesokurtic
22. A decision rule for choos-ing between two investments based on their means and variances.
Stock options (stock option grants)
Stock purchase
Number of days of payables
Markowitz decision rule
23. Approach to translating for-eign currency financial statements for consolida-tion in which all assets and liabilities are translated at the current exchange rate. The cur-rent rate method is the prevalent method of translation.
Voluntary export restraint
Market share test
Current rate method
Target balance
24. Plan in which the company promises to pay a certain annual amount (defined benefit) to the employee after retirement. The company bears the investment risk of the plan assets .
Defined-benefit pension plans
Conglomerate merger
Ratio scales
At the money
25. A swap in which the payments are basedon the difference between interest rates in twocountries but payments are made in only a singlecurrency.
Bootstrapping earnings
Cnsistent
Diff swaps
Normal distribution
26. The ratio of the market value of debt and equity to the replacement cost of total assets.
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27. A measure of financial lever-age calculated as average total assets divided by average total equity.
Declaration date
Permanent differences
Payables turnover
Financial leverage ratio
28. A loss in value caused bychanges in price levels. Monetary assets experi-ence purchasing power losses during periods ofinflation.
Continuing residual income
Efficient frontier
Purchasing power loss
Historical equity risk premium approach
29. A swaption that allows the holder to enter into a swap as the fixed-rate payer and floating-rate receiver.
Justified (fundamental)
Payer swaption
Enterprise value (EV)
Salvage value
30. The combination of the underlying - puts - calls - and risk-free bonds that replicates a forward contract.
Bottom-up investing
Arithmetic mean
Continuing residual income
Synthetic forward contract
31. An option strategy involving the purchase of two puts and one call.
Strip
Full price
Interest rate put
Semivariance
32. The combining of the results of oper-ations of subsidiaries with the parent compaIL y to present financial statements as if they were a sin-gle economic unit. The asset - iabilities - revenues and expenses of the subsidiaries are combined with those
Active investment managers
Measure of location
Consolidation
Market risk premium
33. The cash flow that is real-ized because of a decision; the changes or incre-ments to cash flows resulting from a decision or action.
Incremental cash flow
Mismatching strategy
Interest rate cap or cap
Minority interest (noncontrolling interest)
34. The standard deviation of the differ-ences between a portfolio's returns and its bench-mark's returns; a synonym of active risk.
Swap
Tracking risk
Residual claim
Expanded
35. A balance sheet organized so as to group together the various assets and liabilities into subcategories (e.g. - current and noncurrent) .
Classified balance sheet
Target balance
Systematic sampling
Survey approach
36. Sales price less disposition costs - amortized mortgage loan bal-ance - and capital gains taxes.
Reporting unit
American
After-tax equity reversion (ATER)
Long-lived assets (or long-term assets)
37. A method of account-ing for joint ventures where the venturer's share of the assets - liabilities - income and expenses of the joint venture are combined on a line-by-line basis with similar items on the venturer's financial statements.
Modal interval
Financial leverage ratio
Proportionate consolidation
Closeout netting
38. The value of the middle item of a set of items that has been sorted into ascending or descending order; the 50th percentile.
Optimal capital structure
Qualifying special purpose entities
Median
Corporate raider
39. Very liquid short-tenn investments - usually maturing in 90 days or less.
Target semivariance
Confidence interval
Cash equivalents
Credit spread option
40. With respect to inventory accounting - the planned or target unit cost of inventory items or services.
Pairs arbitrage
Commodity forward
Standard cost
Netting
41. In the context of the Treynor-Black model - the portfolio formed by mixing analyzed stocks of perceived nonzero alpha values. This portfolio is ultimately mixed with the passive mar-ket index portfolio.
Scatter plot
Active portfolio
Revaluation
Earnings expectation management
42. Said of a sale in which proceeds are to be paid in installments over an extended period of time.
Degree of financial leverage (DFL)
Histogram
Due diligence
Installment
43. A probability distribution that specifies the probabilities for a group of related random variables.
Friendly transaction
Out-of-the-money
Performance appraisal
Multivariate distribution
44. The portfolio that exploits an arbitrage opportunity.
Arbitrage portfolio
Deciles
Statement of cash flows (cash flow statement)
Vega
45. Ratios that measure the quantity of an asset or flow (e.g. - earnings) in relation to the price associated with a specified claim (e.g. - a share or ownership of the enterprise).
Floorlet
Qualitative dependent variables
Out-of-sample forecast errors
Valuation ratios
46. A spontaneous form of credit in which a purchaser of the goods or service is financing its purchase by delaying the date on which payment is made.
Ordinary shares (common stock or common shares)
Price multiple
Trade credit
Independent projects
47. An option in which the underlying is a bond; primarily traded in over-the-counter markets.
Net present value (NPV)
Liruit move
Bond option
Macroeconomic factor
48. A regression that expresses the dependen t and independent vari-ables as natural logarithms.
Log-log regression model
Sales-type lease
Vertical common-size analysis
Generalized least squares
49. The amount of money a buyer pays and seller receives to engage in an option transaction.
Overall capitalization rate
Residual income model (RIM) (also discounted ahnormal earnings model or Edwards-Bell-Ohlson model)
Option price - option premium - or premium
Accrued interest
50. An option in which the holder has the right to make an unknown interest payment and receive a known interest payment.
Panel data
Finance lease (capital lease)
Cash o£ fering
Interest rate put
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