Flashcards List - Cfa level ii errata. Cfa level ii errata. Cfa level ii errata. Cfa PDF

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Cfa level ii errata. Cfa level ii errata. Cfa level ii errata. Cfa level ii errata. Cfa level ii errata. Cfa level ii errata. Cfa level ii errata....

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CFA Program Level II for 2020 and 2021 Set Type Default

# of Cards 928 cards

Provider cfainstitute

Side 1

Side 2

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Abandonment Abandonment option option

The ability to terminate a project at some future time if the financial results are disappointing.

2

Abnormal Abnormal earnings earnings

Earnings for a given time period, minus a deduction for common shareholders' opportunity cost in generating the earnings.

3

Abnormal Abnormal return return

The return on an asset in excess of the asset's required rate of return; the risk-adjusted return.

4

Absolute Absoluteconvergence convergence

The idea that developing countries, regardless of their particular characteristics, will eventually catch up with the developed countries and match them in per capita output.

5

Absolute Absolutevaluation valuationmodel model

A model that specifies an asset's intrinsic value.

6

Absolute Absolute version version of of PPP PPP

An extension of the law of one price whereby the prices of goods and services will not differ internationally once exchange rates are considered.

7

Accounting Accountingestimates estimates

Estimates used in calculating the value of assets or liabilities and in the amount of revenue and expense to allocate to a period. Examples of accounting estimates include, among others, the useful lives of depreciable assets, the salvage value of depreciable assets, product returns, warranty costs, and the amount of uncollectible receivables.

8

Accumulated Accumulatedbenefit benefitobligation obligation

The actuarial present value of benefits (whether vested or non-vested) attributed, generally by the pension benefit formula, to employee service rendered before a specified date and based on employee service and compensation (if applicable) before that date. The accumulated benefit obligation differs from the projected benefit obligation in that it includes no assumption about future compensation levels.

9

Accuracy Accuracy

The percentage of correctly predicted classes out of total predictions. It is an overall performance metric in classification problems.

10

Acquirer Acquirer

The company in a merger or acquisition that is acquiring the target.

11

Acquiring Acquiringcompany company

The company in a merger or acquisition that is acquiring the target.

12

Acquisition Acquisition

The purchase of some portion of one company by another; the purchase may be for assets, a definable segment of another entity, or the purchase of an entire company.

13

Acquisition Acquisition

The purchase of some portion of one company by another; the purchase may be for assets, a definable segment of another entity, or the purchase of an entire company.

14

Activation Activation function function

A functional part of a neural network's node that transforms the total net input received into the final output of the node. The activation function operates like a light dimmer switch that decreases or increases the strength of the input.

15

Active Activefactor factorrisk risk

The contribution to active risk squared resulting from the portfolio's different-than-benchmark exposures relative to factors specified in the risk model.

16

Active Active return return

The return on a portfolio minus the return on the portfolio's benchmark.

17

Active Active risk risk

The standard deviation of active returns.

18

Active Activerisk risksquared squared

The variance of active returns; active risk raised to the second power.

19

Active Active share share

A measure of how similar a portfolio is to its benchmark. A manager who precisely replicates the benchmark will have an active share of zero; a manager with no holdings in common with the benchmark will have an active share of one.

20

Active Activespecific specificrisk risk

The contribution to active risk squared resulting from the portfolio's active weights on individual assets as those weights interact with assets' residual risk.

21

Adjusted Adjustedfunds fundsfrom fromoperations operations

Funds from operations (FFO) adjusted to remove any non-cash rent reported under straight-line rent accounting and to subtract maintenance-type capital expenditures and leasing costs, including leasing agents' commissions and tenants' improvement allowances.

Category

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Adjusted Adjustedpresent presentvalue value

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Adjusted R2

24

Administrative Administrativeregulations regulationsororadministrative administrativelaw law

(APV) As an approach to valuing a company, the sum of the value of the company, assuming no use of debt, and the net present value of any effects of debt on company value. A measure of goodness-of-fit of a regression that is adjusted for degrees of freedom and hence does not automatically increase when another independent variable is added to a regression. Rules issued by government agencies or other regulators.

25

Advanced Advanced set set

The reference interest rate is set at beginning of the settlement period.

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Advanced Advancedsettled settled

An arrangement in which the settlement is made at the beginning of the settlement period.

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Agency Agency costs costs

Costs associated with the conflict of interest present when a company is managed by non-owners. Agency costs result from the inherent conflicts of interest between managers and equity owners.

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Agency Agencycosts costsof ofequity equity

The smaller the stake that managers have in the company, the less is their share in bearing the cost of excessive perquisite consumption or not giving their best efforts in running the company.

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Agency Agency issues issues

Conflicts of interest that arise when the agent in an agency relationship has goals and incentives that differ from the principal to whom the agent owes a fiduciary duty.

30

Agglomerative Agglomerativeclustering clustering

A bottom-up hierarchical clustering method that begins with each observation being treated as its own cluster. The algorithm finds the two closest clusters, based on some measure of distance (similarity), and combines them into 1 new larger cluster. This process is repeated iteratively until all observations are clumped into a single large cluster.

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Allowance Allowancefor forloan loanlosses losses

A balance sheet account; it is a contra asset account to loans.

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Alpha

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American AmericanDepositary DepositaryReceipt Receipt

A negotiable certificate issued by a depositary bank that represents ownership in a non-US company's deposited equity (i.e., equity held in custody by the depositary bank in the company's home market).

34

Analysis Analysisofofvariance variance(ANOVA) (ANOVA)

The analysis of the total variability of a dataset (such as observations on the dependent variable in a regression) into components representing different sources of variation; with reference to regression, ANOVA provides the inputs for an F -test of the significance of the regression as a whole.

35

Analysis Analysisofofvariance variance(ANOVA) (ANOVA)

The analysis of the total variability of a dataset (such as observations on the dependent variable in a regression) into components representing different sources of variation; with reference to regression, ANOVA provides the inputs for an F -test of the significance of the regression as a whole.

36

Application Applicationprogramming programminginterface interface(API) (API)

A set of well-defined methods of communication between various software components and typically used for accessing external data.

37

Arbitrage Arbitrage

1) The simultaneous purchase of an undervalued asset or portfolio and sale of an overvalued but equivalent asset or portfolio, in order to obtain a riskless profit on the price differential. Taking advantage of a market inefficiency in a risk-free manner. 2) The condition in a financial market in which equivalent assets or combinations of assets sell for two different prices, creating an opportunity to profit at no risk with no commitment of money. In a well-functioning financial market, few arbitrage opportunities are possible. 3) A risk-free operation that earns an expected positive net profit but requires no net investment of money.

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Arbitrage-free Arbitrage-freemodels models

Term structure models that project future interest rate paths that emanate from the existing term structure. Resulting prices are based on a no-arbitrage condition.

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Arbitrage-free Arbitrage-freevaluation valuation

An approach to valuation that determines security values that are consistent with the absence of arbitrage opportunities.

The return on an asset in excess of the asset's required rate of return; the risk-adjusted return.

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Arbitrage Arbitrageopportunity opportunity

An opportunity to conduct an arbitrage; an opportunity to earn an expected positive net profit without risk and with no net investment of money.

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Arbitrage Arbitrageopportunity opportunity

An opportunity to conduct an arbitrage; an opportunity to earn an expected positive net profit without risk and with no net investment of money.

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Arbitrage Arbitrageportfolio portfolio

The portfolio that exploits an arbitrage opportunity.

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Ask Ask price price

The price at which a trader will sell a specified quantity of a security.

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Asset-based Asset-basedapproach approach

Approach that values a private company based on the values of the underlying assets of the entity less the value of any related liabilities.

45

Asset-based Asset-basedvaluation valuation

An approach to valuing natural resource companies that estimates company value on the basis of the market value of the natural resources the company controls.

46

Asset Asset beta beta

The unlevered beta; reflects the business risk of the assets; the asset's systematic risk.

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Asset Asset purchase purchase

An acquisition in which the acquirer purchases the target company's assets and payment is made directly to the target company.

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Asymmetric Asymmetricinformation information

The differential of information between corporate insiders and outsiders regarding the company's performance and prospects. Managers typically have more information about the company's performance and prospects than owners and creditors.

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At At market market

When a forward contract is established, the forward price is negotiated so that the market value of the forward contract on the initiation date is zero.

50

Authorized Authorizedparticipants participants

(APs) A special group of institutional investors who are authorized by the ETF issuer to participate in the creation/redemption process. APs are large broker/dealers, often market makers.

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Autocorrelation Autocorrelation

The correlation of a time series with its own past values. A time series regressed on its own past values, in which the independent variable is a lagged value of the dependent variable.

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Autoregressive Autoregressivemodel model(AR) (AR)

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Backward Backwardintegration integration

A merger involving the purchase of a target ahead of the acquirer in the value or production chain; for example, to acquire a supplier.

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Backward Backwardpropagation propagation

The process of adjusting weights in a neural network, to reduce total error of the network, by moving backward through the network's layers.

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Backwardation Backwardation

A condition in futures markets in which the spot price exceeds the futures price; also, the condition in which the near-term (closer to expiration) futures contract price is higher than the longer-term futures contract price.

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Bag-of-words Bag-of-words(BOW) (BOW)

A collection of a distinct set of tokens from all the texts in a sample dataset. BOW does not capture the position or sequence of words present in the text.

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Bankruptcy Bankruptcy

A declaration provided for by a country's laws that typically involves the establishment of a legal procedure that forces creditors to defer their claims.

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Base Base error error

Model error due to randomness in the data.

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Basic Basicearnings earningsper pershare share

(EPS) Net earnings available to common shareholders (i.e., net income minus preferred dividends) divided by the weighted average number of common shares outstanding during the period.

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Basis

The difference between the spot price and the futures price.

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Basis Basis trade trade

A trade based on the pricing of credit in the bond market versus the price of the same credit in the CDS market. To execute a basis trade, go long the “underpriced” credit and short the “overpriced” credit. A profit is realized when the price of credit between the short and long position converges.

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Bear Bear hug hug

A tactic used by acquirers to circumvent target management's objections to a proposed merger by submitting the proposal directly to the target company's board of directors.

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Benchmark Benchmarkvalue valueof ofthe themultiple multiple

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Best Best ask ask

The offer to sell with the lowest ask price.

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Best bid

The offer to buy with the highest bid price.

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Best Best offer offer

The offer to sell with the lowest ask price.

67

Bias Bias error error

Describes the degree to which a model fits the training data. Algorithms with erroneous assumptions produce high bias error with poor approximation, causing underfitting and high in-sample error.

68

Bid−ask Bid−ask spread spread

The ask price minus the bid price.

In using the method of comparables, the value of a price multiple for the comparison asset; when we have comparison assets (a group), the mean or median value of the multiple for the group of assets.

69

Bid Bid price price

The price at which a trader will buy a specified quantity of a security.

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Bill-and-hold Bill-and-hold basis basis

Sales on a bill-and-hold basis involve selling products but not delivering those products until a later date.

71

Blockage Blockagefactor factor

An illiquidity discount that occurs when an investor sells a large amount of stock relative to its trading volume (assuming it is not large enough to constitute a controlling ownership).

72

Bond Bond indenture indenture

A legal contract specifying the terms of a bond issue.

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Bond Bondyield yieldplus plusrisk riskpremium premiummethod method

An estimate of the cost of common equity that is produced by summing the before-tax cost of debt and a risk premium that captures the additional yield on a company's stock relative to its bonds. The additional yield is often estimated using historical spreads between bond yields and stock yields.

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Bonding Bonding costs costs

Costs borne by management to assure owners that they are working in the owners' best interest (e.g., implicit cost of non-compete agreements).

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Bonus Bonusissue issueof ofshares shares

A type of dividend in which a company distributes additional shares of its common stock to shareholders instead of cash.

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Book Book value value

Shareholders' equity (total assets minus total liabilities) minus the value of preferred stock; common shareholders' equity.

77

Book Book value valueof ofequity equity

Shareholders' equity (total assets minus total liabilities) minus the value of preferred stock; common shareholders' equity.

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Book Bookvalue valueper pershare share

The amount of book value (also called carrying value) of common equity per share of common stock, calculated by dividing the book value of shareholders' equity by the number of shares of common stock outstanding.

79

Book Bookvalue valueper pershare share

The amount of book value (also called carrying value) of common equity per share of common stock, calculated by dividing the book value of shareholders' equity by the number of shares of common stock outstanding.

80

Bootstrap Bootstrapaggregating aggregating(or (orbagging) bagging)

A technique whereby the original training data set is used to generate random sampling with replacement from the initial training set.

n new training data sets or bags of data. Each new bag of data is generated by

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Bootstrapping Bootstrapping

A statistical method for estimating a sample distribution based on the properties of an approximating distribution.

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Bottom-up Bottom-upapproach approach

With respect to forecasting, an approach that usually begins at the level of the individual company or a unit within the company.

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Bottom-up Bottom-up investing investing

An approach to investing that focuses on the individual characteristics of securities rather than on macroeconomic or overall market forecasts.

84

Breakup Breakup value value

The value derived using a sum-of-the-parts valuation.

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Breakup Breakup value value

The value derived using a sum-of-the-parts valuation.

86

Breusch−Pagan Breusch−Pagan test test

A test for conditional heteroskedasticity in the error term of a regression.

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Brokerage Brokerage

The business of acting as agents for buyers or sellers, usually in return for commissions.

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Buy-side Buy-side analysts analysts

Analysts who work for investment management firms, trusts, and bank trust departments, and similar institutions.

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Buyback Buyback

A transaction in which a company buys back its own shares. Unlike stoc...