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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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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 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.
Interest rate parity
Root mean square(l er ror (RMSE)
Prior probabilities
Trade credit
2. A test in which the null hypothesis is rejected in favor of the alternative hypothesis if the evidence indicates that the population param-eter is either smaller or larger than a hypothe-sized value.
Capture hypothesis
Tax expense
Tangible assets
Two-sided hypothesis test (or two-tailed hypothesis test)
3. A combination of interest rate put options designed to hedge a lender against lower rates on a floating-rate loan.
Deep out of the money
Spearman rank correlation coefficient
Financial analysis
Floor
4. A stock's current mar-ket price divided by the most recent four quarters of earnings per share.
Cost recovery method
Bottom-up analysis
Trailing P/E (or current PIE)
Paired observations
5. The price paid to buy an asset.
Degree of total leverage
Mixed factor models
Entry price
Alternative hypothesis
6. The rate at which periodic interest payments are calculated.
Commercial paper
Option price - option premium - or premium
Stated rate (nominal rate or coupon rate)
Nonlinear relation
7. The risk associated with interest rates - exchange rates - and equity prices.
Discount for lack of control
Market risk
Sensitivity analysis
IRR rule
8. The risk associated with the pos-sibility that a payment due at a later date will not be made.
Long-term liability
Box spread
Histogram
Potential credit risk
9. An operating segment or one level below an operating segment (referred to as a component) .
FIFO method
Sampling distribution
Reporting unit
Historical method
10. A quantitative measure that specifies where data are centered.
Component cost of capital
Interest rate
Measure of central tendency
Due diligence
11. The amount of cash payable by a company to the bondholders when the bonds mature; the promised payment at maturity sepa-rate from any coupon payment.
Free cash flow to equity
Face value (also principal - par value - stated value - or maturity value)
Net liability balance sheet exposure
Operating risk
12. 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
Futures contract
Homoskedasticity
Vertical analysis
13. The present discounted value of future cash flows: For assets - the present dis-counted value of the future net cash inflows that the asset is expected to generate; for liabilities - the present discounted value of the future net cash outflows that a
Long
Direct f'mancing lease
Intangible assets
Present value (PV)
14. A strategy in which a position is hedged by making frequent adjustments to the quantity of the instrument used for hedging in relation to the instrument being hedged.
Bond option
Dynamic hedging
Constant maturity swap or
General Agreement on Tariffs and Trade
15. A European-style option with a value at maturity equal to the difference between the stock price at maturity and the average stock price during the life of the option - or $0 - whichever is greater.
Impairment of capital rule
Asian call option
Estimation
Two-sided hypothesis test (or two-tailed hypothesis test)
16. A measure of central tendency computed by taking the nth root of the product of n non-negative values.
Pretax margin
Acquiring company - or acquirer
Capped swap
Geometric mean
17. The rate of return that suppliers ofcapital require as compensation for their contri-bution of capital.
Chart of accounts
Partial regression coefficients or partial slope coeffi-cients
Money-weighted rate of return
Cost of capital
18. A swap in which the floating payments have an upper limit.
Random number generator
Tax risk
Capped swap
Variation margin
19. With respect to hypothesis testing - the rule according to which the null hypothesis will be rejected or not rejected; involves the compari-son of the test statistic to rejection point(s).
Receiver swaption
Decision rule
Type I error
Accounts payable
20. An estimate of a parameter that involves combining (pooling) observations from two or more samples.
IRR rule
Classified balance sheet
Pooled estimate
Random walk
21. The positive square root of the variance; a measure of dispersion in the same units as the original data.
Standard deviation
Residual income model (RIM) (also discounted ahnormal earnings model or Edwards-Bell-Ohlson model)
Bayes' formula
Cash flow at risk (CFAR)
22. An approach to using price multiples that relates a price multiple to forecasts of fundamentals through a discounted cash flow model.
Cash
Method based on forecasted fundamentals
Segment debt ratio
Share repurchase
23. The ratio of cash dividends paid to earnings for a period.
Clean surplus relation
Dividend payout ratio
First-order serial correlation
Volatility
24. Serial correlation in which a positive e rror for one observation increases the chance of a negative error for another observation - and vice versa.
Vested benefit obligation
Multiple linear regression
Ex-dividend date
Negative serial correlation
25. CMT A hypothetical U.S. Treasury note with a constant maturity. A CMT exists for various years in the range of 2 to
Percentage-of-completion
Constant maturity treasury or
Mispricing
Pairs arbitrage
26. A profitability ratio calculated as (net income - preferred divi-dends) divided by average common equity; equal to the return on equity ratio when no preferred equity is outstanding.
Tenor
Return on common equity (ROCE)
Treasury shares
Liquidation
27. A transaction executed inthe foreign exchange market in which a currencyis purchased (sold) and a forward contract is sold(purchased) to lock in the exchange rate forfuture delivery of the currency. This transactionshould earn the risk-free rate of t
Technical indicators
Days of inventory on hand (DOH)
Direct sales-comparison approach
Covered interest arbitrage
28. The amount of money a buyer pays and seller receives to engage in an option transaction.
U.S. GAAP and uniting of interests under IFRS
Infant-industry argument
Multivariate normal distribution
Option price - option premium - or premium
29. The rate at which an option's time value decays.
Receiver swaption
Ope ating profit margin (operating margin)
Theta
Tenor
30. 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.
Sales risk
Nonmonetary assets and liabilities
Acquisition
Structured note
31. Observations of a variable over time.
Chart of accounts
Time-series data
Share repurchase
Conditional heteroskedasticity
32. A multifactor model in which the factors are attributes of stocks or com-panies that are important in explaining cross-sectional differences in stock prices.
Fundamental factor models
Constant maturity swap or
Present value model or discounted cash flow model
Geometric mean
33. Each component call option in a cap.
Floating-rate loan
Differentiation
Caplet
Chain rule of forecasting
34. The date that employees can first exer-cise stock options; vesting can be immediate or over a future period.
Relative dispersion
Vesting date
Sunk cost
Treasury stock method
35. An act passed by the U.S. Con-gress in 2002 that created the Public Company Accounting Oversight Board (PCAOB) to oversee auditors.
Combination
Semilogarithmic
Equity risk premium
Sarbanes-Oxley Act
36. With reference to the cash flow statement - a format for the presentation of the statement in which cash flow from operat-ing activities is shown as operating cash receipts less operating cash disburseme ts.
Direct format (direct method)
Inventory blanket lien
Mixed factor models
Alternative hypothesis
37. Under U.S. GAAP - a mea-sure used in estimating a defined-benefit pension plan's liabilities - defined as the 'actuarial present value of vested benefits.'
Error autocorrelation
Vested benefit obligation
Random walk
Payout ratio
38. Economic characteristics of a busi-ness such as profitability - financial strength - and risk.
Cash-flow-statement-based accruals ratio
Fundamentals
Vertical analysis
Mismatching strategy
39. Options that relate to investment deci-sions such as the option to time the start of a proj-ect - the option to adjust its scale - or the option to abandon a project that has begun.
Real options
Nonmonetary assets and liabilities
Pre-investing
Quartiles
40. An activity ratio equal to the number of days in a period divided by the inventory ratio for the period; an indication of the number of days a company ties up funds in inventory.
Local currency
Number of days of inventory
Current exchange rate
Float
41. The revaluation of a financial asset or liability to its current market value or fair value.
Option price - option premium - or premium
Arbitrage opportunity
Economic order quantity-reorder point
Mark-ta-market
42. A function that specifies the probability that the random variable takes on a specific value.
Probability function
Lessor
Overall capitalization rate
Dividend discount model based approach
43. An acquisition in which the acquirer gives the target company's shareholders some combination of cash and securities in exchange for shares of the target company's stock.
Stock purchase
Synthetic put
U.S. official reserves
Qualifying special purpose entities
44. An estimate of the equity risk pre-mium that is based upon estimates provided by a panel of finance experts.
Weighted-average cost of capital (WACC)
Decision rule
Survey approach
Catalyst
45. The U.S. interest rate minus the foreign interest rate.
U.S. interest rate differential
London Interbank Offer Rate (LIBOR)
Trading securities (held-for-trading securities)
Target payout ratio
46. 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) .
Centralization permits economies of scale and allows a company to use some of its risks to offset other risks.
Receivables turnover
Contribution margin
Financial transaction
47. A financial covenant made in conjunction with existing debt that restricts a company's ability to incur additional debt at the same seniority based on one or more financial tests or conditions.
Unbiasedness
Parameter
Tender offer
Debt incurrence test
48. The value per share of a no-growth company - equal to the expected level amount of earnings divided by the stock's req uired rate of return.
No-growth value per share
Accumulated depreciation
Swap
Return on total capital
49. Describes two time series that have a long-term financial or economic relationship such that they do not diverge from each other without bound in the long run.
Measure of central tendency
Rho
Analysis of variance (ANOVA)
Cointegrated
50. A forward contract in which the underlying is a foreign currency.
Currency forward
Terminal price multiple
Forward price or forward rate
Parametric test