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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. The risk of a change in value of a n asset or liability denomi-nated in a foreign currency due to a change in exchange rates.
Share repurchase
Unconditional heteroskedasticity
Exposure to foreign exchange risk
Yield
2. Method used to estimate the overall capitalization rate by dividing the sale price of a comparable income property into the net operating income.
Liquidation value
Market-extraction method
First-differencing
Currency swap
3. 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.
Treasury shares
Generalized least squares
Terminal price multiple
Residual income model (RIM) (also discounted ahnormal earnings model or Edwards-Bell-Ohlson model)
4. A transaction whereby the target company management team converts the target to a privately held company by using heavy borrowing to finance the purchase of the target company's outstanding shares.
Leveraged buyout (LBO)
Degree of operating leverage (DOL)
Time series
Standardized beta
5. A public document that provides the material facts concerning matters on which shareholders will vote.
Purchasing power loss
Cross-sectional analysis
Proxy statement
Dynamic hedging
6. Uncorrelated; at a right angle.
Orthogonal
Exercise date
Active specific risk or asset selection risk
Modified duration
7. 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.
Bond equivalent yield
Labor productivity
Stock grants
No-growth value per share
8. The amount by which a unit of currency will grow in a year with interest on inter-est included.
Credit
Noncurrent
Stated rate (nominal rate or coupon rate)
Effective annual rate
9. A graphical depic-tion of a company's investment opportunities ordered from highest to lowest expected return. A company's optimal capital budget is found where the investment opportunity schedule inter-sects with the company's marginal cost of capit
Fixed costs
Cash-flow-statement-based accruals ratio
Investment opportunity schedule
Excess kurtosis
10. A valuation that sums the estimated values of each of a company's busi-nesses as if each business were an independent going concern.
Dealing securities
Sum-of-the-parts valuation
Growth phase
Standardized unexpected earnings (SUE)
11. A contract in which one party has the right to claim a payment from another party in the event that a specific credit event occurs over the life of the contract.
Statement of changes in shareholders' equity (state-ment of owners' equity)
Credit derivatives
Grouping by nature
Credit swap
12. The strategy a company fol-lows with regard to the amount and timing of div-idend payments.
Total probability rule
Historical equity risk premium approach
Dividend payout policy
Du Pont analysis
13. Asset inflows not directly related to the ordi-nary activities of the business.
Gains
Credit
Position trader
Total probability rule for expected value
14. A swap in which the floating payments have an upper limit.
Capped swap
Solvency ratios
Independent
Industry structure
15. The rate of dividend (and earnings) growth that can be sustained over time for a given level of re turn on equity - keeping the capi tal structure constant and wi thout issuing addi tional common stock.
Sustainable growth rate
Cost of carry
Straight-line method
Lessor
16. A form of restructuring in which sharehold-ers of the parent company are given shares in a /Jewl y c eated entity in e~change for their shares of the pare ~ company.
Ordinary annuity
Nominal exchange rate
Split-off
Enterprise risk management
17. Serial correlation in which a positive e rror for one observation increases the chance of a negative error for another observation - and vice versa.
Negative serial correlation
Realizable value (settlement value)
Gains
Independent and identically distributed (l
18. Any action other than a tariff that restricts international trade.
Required rate of return
Nontariff barrier
Rate of return
Vertical merger
19. An amount or percent-age deducted from the pro rata share of 100 per-cent of the value of an equity interest in a business to reflect the absence of some or all of the powers of control.
Account format
Discount for lack of control
Synthetic call
Matching strategy
20. A merger involving companies at different positions of the same production chain; for example - a supplier or a distributor.
Nonstationarity
Valuation
Vertical merger
Currency forward
21. The process of determining the value of an asset or service on the basis of variables per-ceived to be related to future investment returns - or on the basis of comparisons with closely similar assets.
Installment method (installment-sales method)
Valuation
Bottom-up forecasting approach
Imports
22. The period benefited~y the employee's service - usually th e period between the grant date and the vesting date.
Interest rate option
Service period
Stratified random sampling
Hmnan capital
23. The process of using an option to buy or sell the underlying.
Technical indicators
Double declining balance depreciation
Covariance
Exercise or exercising the option
24. The relationship between option price and volatility.
Presentation currency
Arrears swap
Derivatives dealers
Vega
25. The portion of an entity's income that is subject to income taxes under the tax laws of its jurisdiction.
Capital account
Robust
Taxable income
Projected benefit obligation
26. An experiment that can produce one of two outcomes.
Bernoulli trial
Value at risk (VAR)
Hypothesis
Independent
27. A loan that is secured with com-panyassets.
Time value decay
Swap spread
Asset-based loan
Spread
28. Dummy variables used as dependent variables rather than as inde-pendent variables.
Net realizable value
Skewed
Qualitative dependent variables
Heteroskedasticity
29. A specialized computer program or a spreadsheet that solves for the portfolio weights that will result in the lowest risk for a specified level of expected return.
Interest rate
Model specification
Market risk
Optimizer
30. A solvency ratio calculated as total debt divided by total assets.
Collar
Optimal capital structure
Inflation premium
Debt-to-assets ratio
31. The establishment of objectives for individuals - groups - or divisions of an organiza-tion that takes into account the allocation of an acceptable level of risk.
Risk budgeting
Normal backwardation
Mutually exclusive projects
Adjusted R2
32. The portion of the dependent variable that is not explained by the independent vari-able(s) in the regression.
Imports
Error term
Margin
Accounts payable
33. A potential business combina-tion that is endorsed by the managers of both companies.
Economic growth rate
Friendly transaction
Laddering strategy
Bottom-up investing
34. An approach to investment analysis and security selection.
Netting
Market rate
Investment strategy
Float factor
35. Quantiles that divide a distribution into 10 equal parts.
Present value model or discounted cash flow model
Effective annual rate
Factor risk premium (or factor price)
Deciles
36. 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
Deductible temporary differences
Long-term equity anticipatory securities (LEAPS)
Face value (also principal - par value - stated value - or maturity value)
37. CMT A hypothetical U.S. Treasury note with a constant maturity. A CMT exists for various years in the range of 2 to
Exhaustive
Principal
Poison pill
Constant maturity treasury or
38. Division ofnet operating income by an overall capitalization rate to arrive at market value.
Direct income capitalization approach
Active specific risk or asset selection risk
Nondeliverable forwards (NDFs)
Inverse price ratio
39. The contribution to active risk squared resulting from the portfolio's different-than-benchmark exposures relative to factors specified in the risk model.
Exercise or exercising the option
Active factor risk
Protective put
Implied yield
40. A third party that is sought out by the target company's board to purchase the target in lieu of a hostile bidde .
Asset retirement obligations (AROs)
White knight
Default risk premium
Marketability discount
41. The condition of being of sufficient importance so that omission or misstatement of the item in a financial report could make a differ-ence to users' decisions.
Materiality
Partial regression coefficients or partial slope coeffi-cients
Justified price multiple (or warranted price multiple or intrinsic price multiple)
Storage costs or carrying costs
42. Costs (e.g. - executives' salaries) that cannot be directly matched with the timing of rev-enues and which are thus expensed immediately.
Population mean
Period costs
Plain vanilla swap
Unearned fees
43. The number of indepen-dent observations used.
Payment netting
Level of significance
Net borrower
Degrees of freedom (df)
44. Costs of inven tories including costs of purchase - costs of conversion - other costs to bring the inventories to their present location and condition - and the allocated portion of) fixed production overhead costs.
Capitalized inventory costs
Winner's curse
Probit model
Debt incurrence test
45. A statistical model used to clas-sifY borrowers according to creditworthiness.
Notes payable
Credit scoring model
Power of a test
Liquidity
46. 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.
Poison pill
Corporation
Roy's safety first criterion
Exercise date
47. A widely used approach to estimate an overall capitalization rate. It is based on the premise that debt and equity financ-ing is typically involved in a real estate transaction.
Conditional heteroskedasticity
Band-of-investment method
Asian call option
Rate of return
48. The sum of market value of common equity - book value of preferred equity - and face value of debt.
In-process research and development
Orthogonal
Independent and identically distributed (l
Total invested capital
49. An option in which the asset underlying the futures is a commodity - such as oil - gold - wheat - or soybeans.
Debtor nation
Pretax margin
Ordinary least squares (OLS)
Commodity option
50. A solvency ratio calculated as EBIT divided by interest payments.
Multiple
Interest coverage
Share repurchase
Time series