CFA #3 Flashcards
1
Q
Option (or option contract)
A
A financial instrument that gives one party the right, but not the obligation, to buy or sell an underlying asset from or to another party at a fixed price over a specific period of time. Also, referred to as contingent claims.
2
Q
Option price, option premium, or premium
A
The amount of money a buyer pays and seller receives to engage in an option transaction.
3
Q
Order
A
A specification of what instrument to trade, how much to trade, and wheter to buy or sell.
4
Q
Order precedence hierarchy
A
With respect to the exectution of orders to trade, a set of rules that determines which orders execute before other orders.
5
Q
Order-driven markets
A
A market (generally an auction market) that uses rules to arrange trades based on the orders that traders submit; in their pure form, such markets do not make use of dealers.
6
Q
Ordinal scale
A
A measurement scale that sorts data into categories that are ordered (ranked) with respect to some characteristic.
7
Q
Ordinary annuity
A
An annuity with a first cash flow that is paid one period from the present.
8
Q
Ordinary least squares (OLS)
A
An estimation method based on the criterion of minimizing the sum of the squared residuals of a regression.
9
Q
Ordinary shares (common stock or common shares)
A
Equity shares that are subordinate to all other types of equity (e.g., preferred equity).
10
Q
Organic growth
A
Company growth in output or sales that is achieved by making investments interallly (i.e., exludes growth achieved through mergers and acquisitions).
11
Q
Orthogonal
A
Uncorrelated; at a right angle.
12
Q
Other comprehensive income
A
Items of comprehensive income that are not reported on the income statement; comprehensive income minus net income.
13
Q
Other post-retirement benefits
A
Promises by the company to pay benefits in the future, other than pension benefits, such as life insurance premiums and all or part of health care insurance for its retirees.
14
Q
Other receivables
A
Amounts owed to the company from parties other than customers.
15
Q
Outcome
A
A possible value of a random variable.
16
Q
Outliers
A
Small numbers of observations at either extreme (small or large) of a sample.
17
Q
Out-of-sample forecast errors
A
The differences between actual and predicted value of time series outside the sample period used to fit the model.
18
Q
Out-of-sample test
A
A test of a strategy or model using a sample outside the time period on which the strategy or model was developed.
19
Q
Out-of-the-money
A
Options that, if exercised, would require the payment of more money than the value received and therefore would not be currently exercised.
20
Q
Output gap
A
Real GDP minus potential GDP.
21
Q
Overbought
A
A market condition in which market sentiment is thought to be unsustainably bullish.
22
Q
Overnight index swaps (OIS)
A
A swap in which the floating rate is the cumulative value of a single unit of currency invested at an overnight rate during the settlement period.
23
Q
Oversold
A
A market condition in which market sentiment is thought to be unsustainably bearish.
24
Q
Owners’ equity
A
The excess of assets over liabilities; the residual interest of shareholders in the assets of an entity after deducting the entity’s liabilities.
25
Paired comparisons test
A statistical test for differences based on paired observations drawn from samples that are dependent on each other.
26
Paired observations
Observations that are dependent on each other.
27
Pairs arbitrage trade
A trade in two closely related stocks involving the short sale of one and the purchase of the other.
28
Panel data
Observations though time on a single characteristic of multiple obvservational units.
29
Parameter
A descriptive measure computed from or used to describe a population of data, conventionally represented by Greek letters.
30
Parameter instability
The problem or issue of population regression paramters that have changed over time.
31
Parametric test
Any test ( or procedure) concerned with parameters or whose validity depends on assumptions concerning the poulation generating the sample.
32
Partial regression coefficients or partial slope coefficients
The slope coefficients in a multiple in a multiple regression.
33
Participating preference shares
Preference shares that entitle shareholders to receive the standard preferred dividend plus the opportunity to receive an additional dividend in the company's profits exceed a pre-specified level.
34
Partnership
A business owned and operated by more than one individual.
35
Passive investment
A buy and hold approach in which an investor does not make portfolio changes based on short-term expecations or changing market or security performance.
36
Passive strategy
In reference to short-term cash management, it is an investment strategy characterized by simple decision rules for making daily investments.
37
Payables turnover
An activity ratio calculated as purchases divided by average trade payables.
38
Payer swaption
A swaption that allows the holder to enter into a swap as the fixed-rate payer and floating-rate receiver.
39
Payment date
The day that a company actually mails out (or electronically transfers) a dividend payment.
40
Payment netting
A means of settling payments in which the amount owed by the first party to the second is netted with the amount owed by the second party to the first; only the net difference is paid.
41
Payoff
The value of an option at expiration.
42
Payoff matrix
A table that shows the payoffs for every possible action by each player for ever possible action by each other player.
43
Payout
Cash dividends and the value of shares repurchased in any given year.
44
Payout policy
A company's set of principles guiding payouts.
45
Payout ratio
The percentage of total earnings paid out in dividends in any given year (in per-share terms, DPS/EPS).
46
Pecking order theory
The theory that managers take into account how their actions might be interpreted by outsiders and thus order their preferences for various forms of corporate financing.
47
Peer group
A group of companies engaged in similar business activities whose economics and valuation are influenced by closely related factors.
48
Pennants
A technical analysis continuation pattern formed by trendlines that converge to form a triangle, typically over a short period.
49
Per unit contribution margin
The amount that each unit sold contributes to covering fixed costs--that is, the difference between the price per unit and the variable cost per unit.
50
Percentage-of-completion
A method of revenue recognition in which, in each accounting period, the company estimates what percentage fo the contract is complete and then reports that percentage of the total contract revenue in its income statement.
51
Percentiles
Quantiles that divide a distribution into 100 equal parts.
52
Perfect collinearity
The existence of an exact linear relation between two or more independent variables or combinations of independent variables.
53
Perfect competition
A market in which there are many firms each selling an identical product; there are many buyers; there are no restrictions on entry into the industry; firms in the industry have no advantage over potential new entrants; and firms and buyers are well informed about the price of each firm's products.
54
Perfect price discrimination
Price discrimination that extracts the entire consumer surplus.
55
Perfectly elastic demand
Demand with an infinite price elasticity; the quantity demanded changes by an infinitely large percentage in response to a tiny change in price.
56
Perfectly inelastic demand
Demand with a price elasticity of zero; the quantity demanded remains constant when the price changes.
57
Performance appraisal
The evaluation of risk-adjusted performance; the evaluation of inevestment skill.
58
Performance evaluation
The measurement and assessment of the outcomes of investment management decisions.
59
Performance guarantee
A guarantee from the clearinghouse that if one party makes money on a transaction, the clearinghouse ensures it will be paid.
60
Performance measurement
The calculation of returns ina logical and consistent manner.
61
Period costs
Costs (e.g., executives' salaries) that cannot be directly matched with the timing of revenues and which are thus expensed immediately.
62
Periodic rate
The quoted inerest rate per period; the stated annual interest rate divided by the number of compounding periods per year.
63
Permanent differences
Differences between tax and financial reporting of revenue (expenses) that will not be reversed at some future date. These result in a difference between the company's effective tax rate and statutory rax rate and do not result in a deferred tax item.
64
Permutation
An ordered listing.
65
Perpetuity
A perpetual annuity, or a set of never-ending level sequential cash flows, with the first cash flow occurring one period from now.
66
Pet projects
Projects in which influential managers want the corporation to invest. Often, unfortunately, pet projects are selected without undergoing normal capital budgeting analysis.
67
Phillips curve
A curve that shows a relationship between inflation and unemployment.
68
Plain vanilla swap
An interest rate swap in which one party pays a dixed rate and the other pays a floating rate, with both sets of payments in the same currency.
69
Platykurtic
Describes a distribution that is less peaked than the normal distribution.
70
Point and figure chart
A technical analysis chart that is constructed with solumns of Z's alternating with columns of O's such that the horizontal axis represents only the number of changes in price without reference to time or volume.
71
Point estimate
A single numerical estimate of an unknown quantity, such as a population parameter.
72
Point of sale
Systems that capture transaction data at the physical location in which the sale is made.
73
Poison pill
A pre-offer takeover defense mechanism that makes it prohibitively costly for an acquirer to take control of a target without the prior approval of the target's board of directors.
74
Poison puts
A pre-offer takeover defense mechanism that gives taget company bondholders the right to sell their bonds back to the target at a pre-specified redemption price, typically at or above par value; this defense increases the need for cash and raises the cost of the acquisition.
75
Pooled estimate
An estimate of a parameter that involves combining (pooling) observations from two or more samples.
76
Pooling of interests accounting method
A method of accounting in which combined companies were portrayed as if they had always operated as a single economic entity. Called pooling of interests under U.S. GAAP and uniting of interests under IFRS. (No longer allowed under U.S. GAAP or IFRS.)
77
Population
All members of a specific group.
78
Population mean
The arithmetic mean value of a population; the arithmetic mean of all the observations or values in the population.
79
Population standard deviation
A measure of dispersion relating to a population in the same unit of measurement as the observations, calculated as the positive square root of the population variance.
80
Population variance
A measure of dispersion relating to a population , calculated as the mean of the squared deviations around the population mean.
81
Portfolio performance attribution
The analysis of portfolio performance in terms of the contributions from various sources of of risk.
82
Portfolio planning
The process of creating a plan for building a portfolio that is expected to satisfy a client's investment objectives.
83
Portfolio possibilities curve
A graphical representation of the expected return and risk of all portfolios that can be formed using two assets.
84
Position
The quantity of an aset that an entity owns or owes.
85
Position trader
A trader who typically holds positions open overnight.
86
Positive serial correlation
Serial correlation in which a positive error for one observation increases the chance of a positive error for another observation, and a negative error for one observation increases the chance of a negative error for the other observation.
87
Posterior probability
An updated probability that reflects or comes after new information.
88
Potential credit risk
The risk associated with the possibility that a payment due at a later date will not be made.
89
Potential GDP
The value of production when all the economy's labor, capital, land, and entrepreneurial ability are fully employed; the quantity of real GDP at full employment.
90
Power of a test
The probability of correctly rejecting the null--that is, rejecting the null hypothesis when it is false.
91
Precautionary stocks
A level of inventory beyond anticipated needs that provides a cushion in the event that it takes longer to replenish eventory than expected or in the case of greater than expected demand.
92
Preference shares (or preferred stock)
A type of equity interest which ranks above common shares with respect to the payment of dividends and the distribution of the company's net assets upon liquidation. They have characteristics of both debt and equity securities.
93
Preferred sock
A form of equity (generally non-voting) that has priority over common stock in the receipt of dividends and on the issuer's asset in the event of a company's liquidation.
94
Pre-investing
The strategy of using futures contracts to enter the market without an immediate outlay of cash.
95
Prepaid expense
A normal operating expense that has been paid in advance of when it is due.
96
Present (price) value of a basis point (PVBP)
The change in the bond price for a 1 basis point change in yield. Also called basis point value (BPV).
97
Present value (PV)
The present discounted value of future cash flows: For assets, the present discounted 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 are expected to be required to settle the liabilities.
98
Present value models (or discounted cash flow models)
Valuation models that estimate the intrinsic value of a security as the present value of the future benefits expected to be received from the seucrity.
99
Presentation currency
The currency in which financial statement amounts are presented.
100
Pretax margin
A profitability ratio calculated as earnings before taxes divided by revenue.
101
Price ceiling
A regulation that makes it illegal to charge a price higher than a specified level.
102
Price discovery
A feature of futures markets in which futures prices provide valuable information about the price of the underlying asset.
103
Price discrimination
The practice of selling different units of a good or service for different prices or of charging one customer different prices for different quantities bought.
104
Price elasticity of demand
A units-free measure of the responsiveness of the quantity demanded of a good to a change in its price, when all other influences on buyers' plans remain the same.
105
Price floor
A regulation that makes it illegal to trade at a price lower than a specified level.
106
Price limits
Limits imposed by a futures exchange on the price change that can occur from one day to the next.
107
Price multiple
A ratio that compares the share price with some sort of monetary flow or value to allow evaluation of the relative worth of a company's stock.
108
Price priority
The principle that the highest priced buy orders and the lowest priced sell orders execute first.
109
Price relative
A ratio of an ending price over a beginning price; it is equal to 1 plus the holding period return on the asset.
110
Price return
Measures only the price apprecation or percentage change in price of the securities in the index or portfolio.
111
Price return index (or price index)
An index that reflects only the price apprecation or percentage change in price of the constituent securities.
112
Price taker
A firm that cannot influence the price of the good or service it produces.
113
Price to book value
A valuation ratio calculated as price per share divided by book value per share.
114
Price to cash flow
A valuation ratio calculated as price per share divided by cash flow per share.
115
Price to sales
A valuation ratio calculated as price per share divided by sales per share.
116
Price weighting
An index weighting method in which the weight assigned to each constituent security is determined by dividing its price by the sum of all the prices of the constituent securities.
117
Price/earnings (P/E) ratio
The ratio of share pirce to earnings per share.
118
Priced risk
Risk for which investors demand compensation for bearing (e.g. equity risk, company-specific factors, macroeconomic factors).
119
Price-setting option
The operational flexibility to adjust prices when demand varies from forecast. For example, when demand exceeds capacity, the company could benefit from the excess demand by increasing prices.
120
Price-weighted index
An index in which the weight on each consitutent security is determined by dividing its price by the sum of all the prices of the constituent securities.
121
Primary market
The market where securties are first sold and the issuers receive the proceeds.
122
Principal
The amount of funds originally invested in a project or instrument; the face value to be paid at maturity.
123
Principal business activity
The business activity from which a company derives a majority of its revenues and/or earnings.
124
Principal-agent problem
The problem of devising compensation rules that induce an agent to act in the best interest of a principal.
125
Prior probabilities
Probabilities reflecting beliefs prior to the arrival of new information.
126
Private equity securities
Securities that are not listed on the public exchanges and have no active secondary market. They are issued primarily to institutional investors via non-public offerings, such as a private placement.
127
Private investment in public equity
An investment in the equity of a publicly traded firm that is made at a discount to the market value of the firm's shares.
128
Private placement
When corporations sell securities directly to a small group of qualified investors, usually with the assistance of an investment bank.
129
Probability
A number between 0 and 1 describing the chance that a stated event will occur.
130
Probability density function
A function with non-negative values such that probability can be described by areas under the curve graphing the function.
131
Probability distribution
A distribution that specifies the probabilities of a random variable's possible outcomes.
132
Probability function
A function that specifies the probability that the random variable takes on a specific value.
133
Probit model
A qualitative-dependent-variable multiple regression model based on the normal distribution.
134
Producer surplus
The price of a good minus its minimum supply-price, summed over the quantity sold.
135
Product differentiation
Making a product slightly different from the product of a competing firm.
136
Production quota
An upper limit to the quantity of a good that may be produced in a specific period.
137
Production-flexibility
The operational flexibility to alter production when demand varies from forecast. For example, if demand is strong, a company may profit from employees working overtime or from ading additional shifts.
138
Profitability ratios
Ratios that measure a company's ability to generate profitable sales from its resources (assets).
139
Project sequencing
To defer the decision to invest in a future project until the outcome of some or all of the current project is known. Projects are sequenced throught time, so that invesing in a project creates the option to invest in future projects.
140
Projected benefit obligation
Under U.S. GAAP, a measure used in estimating a defined-benefit pension plan's liabilities, defined as "the actuarial present value as of a date of all benefits attributed by the pension benfit formula to employee service rendered prior to that date. The projected benefit obligation is measured using assumptions as to future compensation if the pension benefit formula is based on those future compensation levels."
141
Property, plans, and equipment
Tangible assets that are expected to be used for more than one period in either the production or supply of goods or services, or for administrative purposes.
142
Proportionate consolidation
A method of accounting 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 ventuter's financial statements.
143
Protective put
An option strategy in which a long position in an asset is combined with a long position in a put.
144
Provision
In accounting, a liability of uncertain timing or amount.
145
Proxy fight
An attempt to take control of a company through a shareholder vote.
146
Proxy statement
A public document that provides the material facts concerning matters on which shareholders will vote.
147
Pseudo-random numbers
Numbers produced by random number generators.
148
Pull on liquidity
When disbursements are paid too quickly or trade credit availability is limited, requiring companies to expend funds before they receive funds from sales that could cover the liability.
149
Purchase method
A method of accounting for a business combination where the acquiring company allocates the purchase price to each asset acquired and liability assumed at fair value. If the purchase price exceeds the allocation, the excess is recorded as goodwill.
150
Purchased in-process research and development costs
The costs of research and development in progress at an acquired company.
151
Purchasing power gain
A gain in value caused by changes in price levels. Monetary liabilities experience purchasing power gains during periods of inflation.
152
Purchasing power loss
A loss in value caused by changes in price levels. Monetary assets experience purchasing power losses during periods of inflation.
153
Pure discount instruments
Instruments that pay interest as the difference between the amount borrowed and the amount paid back.
154
Pure factor portfolio
A portfolio with sensitivity of 1 to the factor in question and a sensitivity of 0 to all other factors.
155
Pure-play method
A method for estimating the beta for a company or project; it requires using a comparable company's beta and adjusting it for financial leverage differences.
156
Put
An option that gives the holder the right to sell an underlying asset to another party at a fixed price ove ra specific period of time.
157
Put/call ratio
A technical analysis indicator that eveluates market sentiment based upon the volume of put options traded divided by the volume of call options traded for a particular financial instrument.
158
Putable common shares
Common shares that give investors the option (or right) to sell their shares (i.e., "put" them) back to the issuing company at a price that is specified when the shares are originally issued.
159
Put-call parity
An equation expressing the equivalence (parity) o fa portfolio of a call and a bond with a portfolio of a put and the underlying, which leads to the relationship between put and call prices.
160
Put-call-forward parity
The relationship among puts, calls, and forward contracts.
161
p-Value
The smallest level of significance at which the null hypothesis can be rejectetd; also called the marginal significance level.
162
Qualifying special purpose entities
Under U.S. GAAP, a special purpose entity structure to avoid consolidation that must meet qualification criteria.
163
Qualitative dependent variable
Dummy variables used as dependent variables rather than as independent variables.
164
Quantile (or fractile)
A value at or below which a stated fraction of the data lies.
165
Quantity theory of money
The proposition that in the long run, an increase in the quantity of money brings an equal percentage increase in the price level.
166
Quartiles
Quantiles that divide a distribution into four equal parts.
167
Quick assets
Assets that can be most readily converted to cash (e.g., cash, short-term marketable investments, receivables).
168
Quick ratio, or acid test ratio
A stringent measure of liquidity that indicates a company's ability to satisfy current liabilities with its most liquid assets, calculated as (cash + short-term marketable investments + receivables) divided by current liabilities.
169
Quintiles
Quantiles that divide a distribution into five equal parts.
170
Quote-driven market
A market in which dealers acting as principals facilitate trading.
171
Random number
An observation drawn from a uniform distribution.
172
Random number generator
An algorithm that produces uniformly distributed random numbers between 0 and 1.
173
Random variable
A quantity whose future outcomes are uncertain.
174
Random walk
A time series in which the value of the series in one period is the value of the series in the previous period plus an unpredictable random error.
175
Range
The difference between the maximum and minimum values in a dataset.
176
Ratio scales
A measurement scale that has all the characteristics of interval measurement scales as well as a true zero point as the origin.
177
Ratio spread
An option strategy in which a long position in a certain number of options is offset by a short position in a certain number of other oprtions on the same underlying, resulting in a risk-free position.
178
Rational expectation
The most accurate forecast possible, a forecast that uses all the available information, including knowledge of the relevant economic forces that influence the variable being forecasted.
179
Real business cycle theory
A theory of the business cycle that regards random fluctuations in productivity as the main source of economic fluctuations.
180
Real exchange rate
The relative price of foreign-made goods and services to U.S.-made goods and services.
181
Real risk-free interest rate
The single-period interest rate for a completely risk-free security if no inflation were expected.
182
Real wage rate
The quantity of goods and services that an hour's work can buy. It is equal to the money wage rate divided by the price level and multiplied by 100.
183
Realizable value (settlement value)
With reference to assets, the amount of cash or cash equivalents that could currently be obtained by selling the asset in an orderly disposal; with reference to liabilities, the undiscounted amount of cash or cash equivalents expected to be paid to satisfy the liabilities in the normal course of business.
184
Realized capital gains
The gains resulting from the sale of an asset that has appreciated in value.
185
Rebalancing
Adjusting the weights of the constituent securities to an index.
186
Rebalancing policy
The set of rules that guide the process of restoring a portfolio's asset class weights to those specified in the strategic asset allocation.
187
Recardo-Barro eequivalence
The proposition that taxes and government borrowing are equivalent--a budget deficit has no effect on the real interest rate or investment.
188
Receivables turnover
An activity ratio equal to revenue divided by average receivables.
189
Receiver swaption
A swaption that allows the holder to enter into a swap as the fixed-rate receiver and floating-rate payer.
190
Recessionary gap
The amount by which potential GDP exceeds real GDP.
191
Reference base period
The period in which the CPI is defined to be 100.
192
Regime
With reference to a time series, the underlying model generating the times series.
193
Regression coefficients
The intercept and slope coefficient(s) of a regression.
194
Regulatory risk
The risk associated with the uncertainty of how derivative transactions will be regulated or with changes in regulations.
195
Rejection point (or critical value)
A value against which a computed test statistic is compared to decide whether to reject or not reject the null hypothesis.
196
Relative dispersion
The amount of dispersion relative to a reference value of benchmark.
197
Relative frequency
With reference to an interval of grouped data, the number of observations in the interval divided by the total number of observations in the sample.
198
Relative strengh index
A technical analysis momentum oscillator tha compares a security's gains with its losses over a set period.
199
Relative strength analysis
A comparison of the performance of one asset with the performance of another asset or benchmark based on changes in the ratio of the securities' respective prices over time.
200
Renewable natural resources
Natural resources that can be used repeatedly without depleting what is available for future use.
201
Rent ceiling
A regulation that makes it illegal to charge a rent higher than a specified level.
202
Rent seeking
The pursuit of weath by capturing economic rent--consumer surplus, producer surplus, or economic profit.
203
Reorganization
Agreements made by a company in bankruptcy under which a company's capital structure is altered and/or alternative arrangements are made for debt repayment; U.S. Chapter 11 bankruptcy. The company emerges from bankruptcy as a going concern.
204
Replacement value
The market value of a swap.
205
Report format
With respect to the format of a balance sheet, a format in which assets, liabilities, and equity are listed in a single column.
206
Reputational risk
The risk that a company will suffer an extended diminution in market value relative to other companies in the same industry due to a demonstrated lack of concern for environmental, social, and governance risk factors.
207
Required reserve ratio
The minimum percentage of deposits that banks are required to hold as reserves.
208
Reserve ratio
The fraction of a bank's total deposits that are held in reserves.
209
Reserves
A bank's reserves consist of notes and coins in its vaults plus its deposit at the Federal Reserve.
210
Residual autocorrelations
The sample autocorrelations of the residuals.
211
Residual claim
The owners' remaining claim on the company's assets after the liabilities are deducted.
212
Residual dividend approach
A dividend payout policy under which earnings in excess of the funds necessary to finance the equity portion of company's capital budget are paid out in dividends.
213
Residual loss
Agency costs that are incurred despite adequate monitoring and bonding of management.
214
Resistance
In technical analysis, a price range in which selling activity is sufficient to stop the rise in the price of a security.
215
Retail method
An inventory accounting method in which the sales value of an item is reduced by the gross margin to calculate the item's cost.
216
Retracement
In technical analysis, a reversal in the movement of a security's price such that it is counter to the prevailing longer-term price trend.
217
Return on assets (ROA)
A profitability ratio calculated as net income divided by average total assets; indicates a company's net profit generated per dollar invested in total assets.
218
Return on common equity (ROCE)
A profitability ratio calculated as (net income - preferred dividends) divided by average common equity; equal to the return on equity ratio when no preferred equity is outstanding.
219
Return on equity (ROE)
A profitability ratio calculated as net income divided by average shareholders' equity.
220
Return on total capital
A profitability ratio calculated as EBIT divided by the sum of short- and long-term debt and equity.
221
Return-generating model
A model that can provide an estimate of the expected return of a security given certain parameters and estimates of the values of the independent variables in the model.
222
Revaluation
The process of valuing long-lived assets at fair value, rather than at cost less accumulated depreciation. Any resulting profit or loss is either reported on the income statement and/or through equity under revaluation surplus.
223
Revenue
The amount charged for the delivery of goods or services in the ordinary activities of a business over a stated period; the inflows of economic resources to a company over a stated period.
224
Reversal patterns
A type of pattern used in technical analysis to predict the end of a trend and a change in direction of the security's price.
225
Reverse stock split
A reduction in the number of shares outstanding with a corresponding increase in share price, but no change to the company's underlying fundamentals.
226
Revolving credit agreemtnts
The strongest form of short-term bank borrowing facilities; they are in effect for multiple years (e.g., 3-5 years) and may have optional medium-term loan features.
227
Rho
The sensitivity of the option price to the risk-free rate.
228
Risk averse
The assumption that an investor will choose the least risky alternative.
229
Risk aversion
The degree of an investor's inability and unwillingness to take risk.
230
Risk budgeting
The establishment of objectives for individuals, groups, or divisions of an organization that takes into account the allocation of an acceptable level of risk.
231
Risk governance
The setting of overall policies and standards in risk management.
232
Risk management
The process of identifying the level of risk an entity wants, measuring the level of risk the entity currently has, taking actions that bring the actual level of risk to the desired level of risk, and monitoring the new actual level of risk so that it continues to be aligned with the desired level of risk.
233
Risk premium
The expected return on an investment minus the risk-free rate.
234
Risk tolerance
The amount of risk an investor is willing and able to bear to achieve an investment goal.
235
Risk-neutral probabilities
Weights that are used to compute a binomial option price. They are the probabilities that would apply is a risk-netural investor valued an option.
236
Risk-neutral valuation
The process by which options and other derivatives are priced by treating investors as though they were risk neutral.
237
Robust
The quality of being relatively unaffected by a violation of assumptions.
238
Robust standard errors
Standard errors of the estimated parameters of a regression that correct for the presence of heteroskedasticity in the regression's error term.
239
Root mean squarred error (RMSE)
The square root of the average squared forecast error; used to compare the out-of-sample forecasting performance of forecasting models.
240
Roy's safety first criterion
A criterion asserting tha the optimal portfolio is the one that minimizes the probability that portfolio return falls below a threshold level.
241
Rule of 72
The principle that the approximate number of years necessary for an investment to double is 72 divided by the stated interest rate.
242
Safety stock
A level of inventory beyond anticipated needs that provides a cushion in the event that it takes longer to replenish inventory than expected or in the case of greater than expected demand.
243
Safety-first rules
Rules for portfolio selection that focus on the risk that portfolio value will fall below some minimum acceptable level over some time horizon.
244
Sales
Generally, a synonym for revenue; "sales" is generally understood to refer to the sale of goods, whereas "revenue" is understood to include the sale of goods or services.
245
Sales returns and allowances
An offset to revenue reflecting any cash refunds, credits on account, and discounts from sales prices given to customers who purchased defective or unsatisfactory items.
246
Sales risk
Uncertainty with respect to the quantity of goods and services that a company is able to sell and the price it is able to achieve; the risk related to the uncertainty of revenues.
247
Sales-type lease
A type of finance lease, from a lessor perspective, where the present value of the lease payments (lease receivable) exceeds the carrying vlue of the leased asset. The revenues earned by the lessor are operating (the profit on the sale) and financing (interest) in nature.
248
Salvage value (or residual value)
The amount the company estimates that it can sell the asset for at the end of its useful life.
249
Samle statistic or statistic
A quantity computed from or used to describe a sample.
250
Sample
A subset of a population.
251
Sample excess kurtosis
A sample measure of the degree of a distribution's peakedness in excess of the normal distribution's peakedness.
252
Sample kurtosis
A sample measure of the degree of a distribution's peakedness.
253
Sample mean
The sum of the sample observations, divided by the sample size.
254
Sample selection bias
Bias introduced by systematically excluding some members of the population according to a particular attribute--for example, the bias introduced when data availability leads to certain observations being excluded from the analysis.
255
Sample skewness
A sample measure of degree of asymmetry of a distribution.
256
Sample standard deviation
A positive square root of the sample variance.
257
Sample variance
A sample measure of the degree of dispersion of a distribution, calculated by dividing the sum of the squared deviations from the sample mean by the sample size (n) minus 1.
258
Sampling
The process of obtaining a sample.
259
Sampling distribution
The distribution of all distinct possible values that a statistic can assume when computed from samples of the same size randomly drawn from the same population.
260
Sampling error
The difference between the observed value of a statistic and the quantity it is intended to estimate.
261
Sampling plnan
The set of rules used to select a sample.
262
Sandwich spread
An option strategy that is equivalent to a short bufferfly spread.
263
Sarbanes-Oxley Act
An act passed by the U.S. Congress in 2002 that created the Public Company Accounting Oversight Board (PCAOB) to oversee auditors.
264
Scalper
A trader who offers to buy or sell futures contracts, holding the position for only a brief period of time. Scalpers attempt to profit by buying at the bid price and selling at the higher ask price.
265
Scatter plot
A two-dimensional plot of pairs of observations on two data series.
266
Scenario analysis
Analysis that shows the changes in key financial quantities that result form given (economic) events, such as the loss of customers, the loss of a supply source, or a catastophic event; a risk managemtn technique involving examination of the performance of a portfolio under specified situations. Closely related to stress testing.
267
Screening
The application of a set of criteria to reduce a set of potential investments to a smaller set having certain desired characteristics.
268
Search activity
The time spent looking for someone with whom to do business.
269
Seasoned offering
An offering in which an issuer sells additional units of a previously issued security.
270
Seats
Memberships in a derivatives exchange.
271
Secondary market
The market where securities are traded among investors.
272
Secondary precendence rules
Rules that determine how to rank orders placed at the same time.
273
Sector
A group fo related industries.
274
Sector indices
Indices that represent and track different economic sectors--such as consumer goods, energy, finance, health care, and technology--on either a national, regional, or global basis.
275
Sector neutralizing
Measure of financial reporting quality by subtracting the mean or mediam ratio for a given sector group from a given company's ratio.
276
Securities Act of 1933
An act passed by the U.S. Congress in 1933 that specifies that financial and other significant information that investors must receive when securities are sold, prohibits misrepresentations, and requires initial registration of all public issuances of securities.
277
Securities Exchange Act of 1934
An act passed by the U.S. Congress in 1934 that created the Securities and Exchange Commission (SEC), gave the SEC authority over all aspects of the securities industry, and empowerd the SEC to require periodic reporting of companies with publicly traded securities.
278
Securities offering
A merger or acquisition in which target shareholders are to receive shares of the acquirer's common stock as compensation.
279
Security characteristic line
A plot of the excess retrun of a security in excess return of the market.
280
Security market index
A portfolio of securities representing a given security market, market segment, or asset class.
281
Security market line (SML)
The graph of the capital asset pricing model.
282
Security selection
The process of selecting individual securities; typically security selection has the objective of generating superior risk-adjusted returns relative to a portfolio's benchmarks.
283
Segment debt ratio
Segment liabilities divided by segment assets.
284
Segment margin
Segment profit (loss) divided by segment revenue.
285
Segment ROA
Segment profit (loss) divided by segment assets.
286
Segment turnover
Segment revenue divided by segment assets.
287
Self-investment limits
With respect to investment limitations applying to pension plans, restrictions on the percentage of assets that can be invested in securities issued by the pension plan sponsor.
288
Sell side firm
A broker or dealer that sells securities to and provides independent investment research and recommendations to investment mangement companies.
289
Semideviation
The positive square root of semivariance (sometimes called semistandard deviation).
290
Semilogarithmic
Describes a scale constructed so that equal intervals on the vertical scale represent equal rates of change, and equal intervals on the horizontal scale represent equal amounts of change.
291
Semi-strong-form efficient market hypothesis
The belief that security prices reflect all publicly known and available information.
292
Semivariance
The average equared deviation below the mean.
293
Sensitivity analysis
Analysis that shows the range of possible outcomes as specific assumptions are changed.
294
Separately managed account (SMA)
An investment portfolio managed exclusively for the benefit of an individual or institution.
295
Serially correlated
With reference to regression errors, errors that are correlated across observations.
296
Service period
The period benefited by the employee's service, usually the period between the grant date and the vesting date.
297
Settlement date or payment date
The date on which the parties to a swap make payments.
298
Settlement period
The time between settlement dates.
299
Settlement price
The official price, designated by the clearinghouse, from which daily gains and losses will be determined and marked to market.
300
Settlement risk
When settling a contract, the risk that one party could be in the process of paying the counterparty while the counterparty is declaring bankruptcy.
301
Share repurchase
A transaction in which a company buys back its own shares. Unlike stock dividends and stock splits, share repurchases use corporate cash.
302
Shark repellents
A pre-offer takeover defense mechanism involving the corporate charter (e.g., staggered boards of directors and supermajority provisions).
303
Sharpe ratio
The average return on excess of the risk-free rate divided by the standard deviation of return; a measure of the average excess return earned per unit of standard deviation of return.
304
Shelf registration
A registration of an offering well in advance of the offering; the issuer may not sell all shares registered in a single transaction.
305
Short
The seller of a derivative contract. Also refers to the position of being short a derivative.
306
Short position
A position in an asset or contract in which one has sold an asset one does not own, or in which a right under a contract can be exercised against oneself.
307
Short run
The period of time in which the quantity of at least one factor of production is fixed and the quantities of the other factors can be varied. The fixed factor is usually capital--that is, the firm has a given plant size.
308
Short selling
A transaction in which borrowed securities are sold with the intention to repurchase them at a lower price at a later date and return them to the lender.
309
Shortfall risk
The risk that portfolio value will fall below some minimum acceptable level over some time horizon.
310
Short-run aggregate supply
The relationship between the quantity of real GDP supplied and the price level when the money wage rate, the prices of other resources, and potential GDP remain constant.
311
Short-run industry supply curve
A curve that shows the quantity supplied by the industry at each price when the plant size of each firm and the number of firms in the industry remain the same.
312
Short-run macroeconomic equilibrium
A situation that occurs when the quantity of real GDP demanded equals the quantity of real GDP supplied--at the point of intersection of the AD curve and the SAS curve.
313
Short-run Phillips curve
A curve that shows the tradeoff btween inflation and unemployment, when the expected inflation rate and the natural unemployment rate remain the same.
314
Shutdown point
The output and price at which the firm just covers its total variable cost. In the short run, the firm is indifferent between producing the profit-maximizing output and shutting down temporarily.
315
Signal
An action taken by an informed person (or firm) to send a message to uninformed people or an action taken outside a market that conveys information that can be used by the market.
316
Simple interest
The interest earned each period on the original investment; interest calculated on the pricipal only.
317
Simple random sample
A subset of a larger population created in such a way that each element of the population has an equal probability of being selected to the subset.
318
Simple random sampling
The procedure of drawing a sample to satisfy the definition of a simple random sample.
319
Simulation
Computer-generated sensitivity or scenario analysis that is based on probability models for the factors that drive outcomes.
320
Simulation trial
A complete pass throug the steps of a simulation.
321
Single-payment loan
A loan in which the borrower receives a sum of money at the start and pays back the entire amount with interest in a single payment at maturity.
322
Single-price monopoly
A monopoly that must sell each unit of its output for the same price to all its customers.
323
Single-step format
With respect to the format of the income statement, a format that does not subtotal for gross profit (revenue minus cost of goods sold).
324
Skewed
Not symmetrical.
325
Skewness
The quantitative measure of skew (lack of symmetry); a synonym of skew.
326
Sole proprietorship
A business owned and operated bya single person.
327
Solvency
With respect to financial statement analysis, the ability of a company to fulfill its long-term obligations.
328
Solvency ratios
Ratios that measure a company's ability to meet its long-term obligations.
329
Sovereign yield spread
An estimate of the country spread (country equity premium) for a developing nation that is based on a comparison of bond yield on country being analyzed and a developed country. The sovereign yield spread is the difference between a government bond yield in the country being analyzed, denominated in the currency of the developed country, and the Treasury bond yield on a similar maturity bond in the developed country.
330
Spearmean rank correlation coefficient
A measure of correlation applied to ranked data.
331
Special purpose entity (special purpose vehicle or variable interest entity)
A non-operating entity created to carry out a specified purpose, such as leasing assets or securitizing receivables; can be a corporation, partnership, trust, limited liablity, or partnership formed to facilitate a specific type of business activity.
332
Specific identification method
An inventory accounting method that identifies which specific inventory items were sold and which remained in inventory to be carried over to later periods.
333
Spin-off
A form of restructuring in which shareholders of the parent company receive a poportional number of shares in a new, separate entity; shareholders end up owning sock in two different companies where there used to be one.
334
Split-off
A form of restructuring in which shareholders of the parent company are given shares in the newly created entity in exchange for their shares in the parent company.
335
Split-rate
In reference to corporate taxes, a split-rate system taxes earnings to be distributed as dividends at a diffeeent rate than earnings to be retained. Corporate porfits distributed as dividends are taxed at a lower rate than those retained in the business.
336
Sponsored depository receipt
A type of depository receipt in which the foreign company whose shares are held by the depository has a direct involvement in the issuance of receipts.
337
Spot markets
Markets that trade assets for immediate delivery.
338
Spread
An option strategy involving the purchase of one option and sale of another option that is identical to the first in all respects except either exercise price or expiration.
339
Spurious correlation
A correlation that misleadingly points toward associations between variables.
340
Stagflation
The combination of inflation and recession.
341
Standard cost
With respect ot inventory accounting, the planned or target unit cost of inventory items or services.
342
Standard deviation
The positive square root of the variance; a measure of dispersion in the same units as the original data.
343
Standard normal distribution (or unit normal distribution)
The normal density with mean (?) equal to 0 and standard divaiton (?) equal to 1.
344
Standardized beta
With reference to fundamental factor models, the value of the attribute for an asset minus the average value fo the attribute across all stocks, divided by the standard deviation of the attribute across all stocks.
345
Standardizing
A transformation that involves subtracting the mean and dividing the result by the standard deviation.
346
Standing limit orders
A milit order at a price below market and which therefore is waiting to trade.
347
Stated annual interest rate or quoted interest rate
A quoted interest rate that does not account for compounding within the year.
348
Stated rate (nominal rate or coupon rate)
The rate at which periodic interest payments are calculated.
349
Statement of cash flows (cash flow statement)
A financial statement that reconciles beginning-of-period and end-of-period balance sheet values of cash; provides information about an entity's cash inflows and cash outflows as they pertain to operating, investing, and financing activities.
350
Statement of changes in shareholders' equity (statement of owners' equity)
A financial statement that reonciles the beggining-of-period and end-of-period balance sheet values of shareholder' equity; provides information about all factors afffecting shareholders' equity.
351
Statement of retained earnings
A financial statement that reconciles beginning-of-period and end-of-period balance sheet values of retained income; shows the linkage between the balance sheet and income statement.
352
Static trade-off ehtory of capital structure
A theory pertaining to a company's optimal capital structure; the optimal level of debt is found at the point where additional debt would cause the costs of financial distress to increase by a greater amount than the benefit of the additional tax shield.
353
Statistic
A quantity computed form or used to describe a sample of data.
354
Statistic factor models
A multifactor model in which statistical methods are applied ot a set of historical returns to determine portfolios that best explain either historical return covariances or variances.
355
Statistical inference
Making forecasts, estimates, or judgments about a larger group from a smaller group actually ovserved; using a sample statistic to infer the value of an unknown population parameter.
356
Statistically significant
A result indicating that the null hypothesis can be rejected; with reference to an estimated regression coefficient, frequently understood to mean a result indicating that the correspoinding population regression coefficient is different from 0.
357
Statistics
The science of describing, analyzing, and drawing conclusions from data; also, a collection of numberical data.
358
Statutory merger
A merger in which one company ceases to exist as an identifiable entity and all its assets and liabilities become part of a purchasing company.
359
Statutory voting
A common method of voting where each share represents one vote.
360
Stock dividend (also bonus issue of shares)
A type of dividend in which a company distributes additional shares of its common stock to shareholders instead of cash.
361
Stock grants
The granting of stock to employees as a form of compensation.
362
Stock options (stock option grants)
The granting of stock options to employees as a form of compensation.
363
Stock purchase
An acquisition in which the acquirrer gives the target company's shareholders some combination of cash and securities in exchange for shares of the target company's stock.
364
Stock-out losses
Profits lost form not having sifficient inventory on hand to satisfy demand.
365
Stop order (or stop-loss order)
An order in which a trader has specified a stop price condition.
366
Storage costs or carrying costs
The costs of holding an asset, generally a function of the physical characteristics of the underlying asset.
367
Straddle
An option strategy involving the purchase of a put and a call with the same exercise price. A straddle is based on the expectation of high volatility of the underlying.
368
Straight-line method
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.
369
Strangle
A variation of a straddle in which the put and call have different exercise prices.
370
Strap
An option strategy involving the purchase of two calls and one put.
371
Strategic analysis
Analysis of the competitive environment with an emphasis on the implications of the environment for corporate strategy.
372
Strategic asset allocation
The set of exposures to IPS-permissible asset classes that is expected to achieve the client's long-term objecties given the client's investment contraints.
373
Strategic groups
Groups sharing distinct business models or catering to specific market segments in an industry.
374
Strategies
All the possible actions of each player in a game.
375
Stratified random sampling
A procedure by which a population is divided into subpopulations (strata) based on one or more classification criteria. Simple random samples are then drawn from each stratum in sizes proportional to the relative size of teach stratum in the population. These samples are then pooled.
376
Stress testing
A set of techniques for estimating losses in extremely unfavorable combinations fo events or scenarios.
377
Strip
An option strategy involving the purchase of two puts and one call.
378
Strong-form efficient market hypothesis
The belief that security prices reflect all public and private information.
379
Structural surplus or deficit
The budget balance that would occur if the economy were at full employment and real GDP were equal to potential GDP.
380
Structural unemployemnt
The unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs.
381
Structured note
A variation of a floating-rate note that has some type of unusual characteristic such as a leverage factor or in which the rate moves opposite to interest rates.
382
Subjective probability
A probability drawing on personal or subjective judgment.
383
Subsidiary merger
A merger in which the company being purchased becomes a subsidiary of the purchaser.
384
Subsidy
A payment made by the government to a producer.
385
Sunk cost
A cost that has already been incurred.
386
Supply-side effects
The effects of fiscal policy on employment, potential GDP, and aggregate supply.
387
Support
In technical analysis, a price range in which bying activity is sufficient to stop the decline in the price of a seucrity.
388
Support level
A price at which investors consider a security to be an attractie investment and are willing to buy, even in the wake of a sharp decline. The actual value of a variable minus its predicted (or expected) value.
389
Surprise
The actual value of a variable minus its predicted (or expected value).
390
Survey approach
An estimate of the equity risk premium that is based upon estimates provided by a panel of finance experts.
391
Survivorship bias
The bias resulting from a test design that fails to account for companies that have gone bakrupt, merged, or are otherwise no longer reported in a database.
392
Sustainable growth rate
The rate of dividend (and earnings) growth that can be sustained over a time for a given level of return on equity, keeping the capital structure constant and without issuing additional common stock. An agreement between two parties to exchange a series of future cash flows.
393
Swap (or swap contract)
An agreement between two parties to exchange a series of future cash flows.
394
Swap spread
The diffeerence between the fixed rate on an interest rate swap and the rate on a Treasury note with equivalent maturity; it reflects the general level of credit risk in the market.
395
Swaption
An option to enter into a swap.
396
Symmetry principle
A requirement that people in similar situations be treated similarly.
397
Synthetic call
The combination of puts, the underlying, and risk-free bonds that replicates a call option.
398
Synthetic forward contract
The combinations of the underlying, puts, calls, and risk-free bonds that replicates a forward contract.
399
Synthetic index fund
An index fund position created by combining risk-free bonds and futures on the desired index.
400
Synthetic put
The combination of calls, the underlying, and risk-free bonds that replicate a put option.
401
Systematic factors
Factors that affect the average returns of a large number of different assets.
402
Systematic risk
Risk that affects the entire market or economy; it cannot be avoided and is inherent in the overall market. Systematic risk is also known as non diversifiable or market risk.
403
Systematic sampling
A procedure of selecting the kth member until reaching a sample of the desired size. The sample that results from this procedure should be approximately random.
404
Tactical asset allocation
The decision to deliverately deviate from the strategic asset allocation in an attempt to add value based on forecasts of the near-term relative performance of asset classes.
405
Takeover
A merger; the term may be applied to any transaction, but is often used in reference to hostile transactions.
406
Takeover premium
The amount by which the takeover price for each share of stock must exceed the current stock price in order to entice shareholders to relinquish control of the company to an acquirer.
407
Tangible assets
Long-term assets with physical substance that are used in company operations, such as land (property), plant, and equipment.
408
Target balance
A minimum level of cash to be held available--estimated in advance and adjusted for known funds transfers, seasonality, or other factors.
409
Target capital structure
A company's chosen proportions of debt and euqity.
410
Target company or target
The company in a merger or acquisision that is being acquired.
411
Target payout ratio
A strategic corporate goal representing long-term proportion of earnings that the company intends to distribute to shareholders as dividends.
412
Target semideviation
The positive square root of target semivariance.
413
Target semivariance
The average squared deviation below a target value.
414
Targeting rule
A decision rule for monetary policy that sets the policy instrument at a level that makes a forecast of the ultimate policy target equal to the target.
415
Tax base (tax basis)
The amount at which an asset or liability is valued for tax puposes.
416
Tax expense
An aggregate of an entity's income tax payable (or recoverable in the case of a tax benefit) and any changes in deferred tax assets and liabilities. It is esentially the income tax payable or recoverable if these had been determined based on accounting profit rather than taxable income.
417
Tax incidence
The division of the burden of the tax between the buyer and the seller.
418
Tax loss carry forward
A taxable loss in the current period that may be used to reduce future taxable income.
419
Tax risk
The uncertainty associated with tax laws.
420
Tax wedge
The gap between the before-tax and after-tax wage rates.
421
Taxable income
The portion of an entity's income that is subject to income taxes under the tax laws of its jurisdiction.
422
Taylor rule
A rule that sets the federal funds rate at the equilibrium real interest rate (which Taylor says is 2 percent a year) plus amounts based on the inflation rate and the output gap.
423
t-Distribution
A summetrical distribution defined by a single parameter, degrees of freedom, that is largely used to make inferences concerning the mean of the normal distribution whose variance is unknown.
424
Technical analysis
A form of security analysis that uses price and volume data, which is often displayed graphically, in decision making.
425
Technological efficiency
A situation that occurs when the firm produces a given output by using the least amount of inputs.
426
Technology
Any method of producing a good or service.
427
Temporal method
A variation of the monetary/nonmonetary translation method that requires not only monetary assets and liabilities, but also nonmonetary assets and liabilities that are measured at their current value on the balance sheet date to be translated at the current exchange rate. Assets and liabillities are translated at rates consistent with the timing of their measurement value. This method is typically used when the functional currency is other than the local currency.
428
Tender offer
A public offer whereby the acquirer invites target shareholders to submit ("tender") their shares in return for the proposed payment.
429
Tenor
The original time to maturity on a swap.
430
Terminal stock value (or terminal value)
The expected value of a share at the end of the investent horizon--in effect, the expected selling price.
431
Termination date
The date of the final payment on a swap; also, the swap's expiration date.
432
Test statistic
A quantity, calculated based on a sample, whose value is the basis for deciding whether or not to reject the null hypothesis.
433
Theta
The rate at which an option's time value decays.
434
Time series
A set of observations on a variable's outcomes in different time periods.
435
Time to expiration
The time remaining in the life of a derivative, typically expressed in years.
436
Time value decay
The loss in the value of an option resulting from movement of the option price toward its payoff value as the expiration day approaches.
437
Time value of money
The principles governing equivalence relationships between cash flows with different dates.
438
Time value or speculative value
The difference between the market price of the option and its intrinsic value, determined by the uncertainty of the underlying over the remaining life of the option.
439
Time-period bias
The possiblity that when we use a time-series sample, our statistical conclusion may be sensitive to the starting and ending dates of the sample.
440
Time-series data
Observations of a variable over time.
441
Time-weighted rate of return
The compound rate of growth of one unit of currency invested in a portfolio during a stated measurement period; a measure of investment performane that is not sensitive to the timing and amount of withdrawals or additions to the portfolio.
442
Top-down analysis
With reference ot investment selection processes, an approach that starts with macro selection (i.e., identifying attractive geographic segments and/or industry segments) and then addresses selection of the most atractive investments within those segments.
443
Total asset turnover
An activity ratio calculated as revenue divided by average total assets.
444
Total cost
The cost of all the productive resources that a firm uses.
445
Total fixed cost
The cost of the firm's fixed inputs.
446
Total invested capital
The sum of market value of common equity, book value of preferred equity, and face value of debt.
447
Total probability rule
A rule explaining the unconditional probability of an event in terms of probabilities of the event conditional on mutually exclusive and exhaustive scenarios.
448
Total probability rule for expected value
A rule explaining the expected value of a random variable in terms of expected values of the random variable conditional on mutually exclusive and exhaustive scenarios.
449
Total product
The total output produced by a firm in a given period of time.
450
Total return
Measures the price appreciation, or percentage change in price of the securities in an index or portfolio, plus any income received over the period.
451
Total return index
An index that reflects the price appreciation or percentage change in price of the constituent seucurities plus any income received since inception.
452
Total return swap
A swap in which one party agrees to pay the total return on a security. Often used as a credit derivative, in which the underlying is a bond.
453
Total revenue
The value of a firm's sales. It is calculated as the price of the good multiplied by the quantity sold.
454
Total revenue test
A method of estimating the price elasticity of demand by observing the change in total revenue that results from a change in the price, when all other influences on the quantity sold remain the same.
455
Total variable cost
The cost of all the firm's variable inputs.
456
Tracking error
The standard deviation of the difference in returns between an active investment portfolio and its benchmark portfolio; also called tracking error volatility, tracking risk, and active risk.
457
Tracking portfolio
A portfolio having factor sensitivities that are matched to those of a benchmark or other portfolio.
458
Tracking risk (tracking error)
The standard deviation of the differences between a portfolio's returns and its benchmarks returns; a synonym of active risk.
459
Trade credit
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.
460
Trade receivables (commercial receivables or accounts receivable)
Amounts customers owe the company for products that have been sold as well as amounts that may be due from suppliers (such as for returns of merchandise).
461
Trading securties (held-for-trading securities)
Securities held by a company with the intent to trade them.
462
Traditional investment markets
Markets for traditional investments, which include all publicly traded debts and equities and shares in pooled investment vehicles that hold publicly traded debts and/or equitities.
463
Transaction exposure
The risk of a change in value between the transaction date and the settlement date of an asset or liability denominated in a foreign currency.
464
Transactions motive
In the context of inventory mangement, the need for inventory as part of the routine product-sales cyle.
465
Translation exposure
The risk associated with the conversion of foreign financial statements into domestic currency.
466
Treasury shares
Shares that were issued and subsequiently repurchased by the company.
467
Treasury stock method
A method for accounting for the effect of options (and warrants) on earnings per share (EPS) that specifies what EPS would have been if the options and warrants had been exercised and the company had used the proceeds to repurchase common stock.
468
Tree diagram
A diagram with branches emanating from nodes representing either mutually exclusive chance events or mutually exclusive decisions.
469
Trend
A long-term pattern of movement in a particular direction.
470
Treynor ratio
A measure of risk-adjusted performance that relates a portfolio's excess returns to the portfolio's beta.
471
Triangle patterns
In technical analysis, a continuation chart pattern that forms as the range between high and low prices narrows, visually forming a triangle.
472
Trimmed mean
A mean computed after excluding a stated small percentage of the lowest and highest observations.
473
Triple bottoms
In technical analysis, a reversal pattern that is formed when the price forms three troughs at roughly the same price level; used to predict a change from a downtrend to an uptrend.
474
Triple tops
In technical analysis, a reversal pattern that is formed when the price forms three peaks at roughly the same price level; used to predict a change from an uptrend to a downtrend.
475
Trust receipt arrangement
The use of inventory as collateral for a loan. The inventory is segregated and held in trust, and the proceeds of any sale must be remitted to the lender immediately.
476
t-Test
A hypothesis test using a statistic (t-statistic) that follows a t-distribution.
477
Two-fund separation theorem
The theory that all investors regardless of taste, risk preferences, and initial wealth will hold a combination of two portfolios or funds: a risk-free asset and an optimal portfolio of risky assets.
478
Two-sided hypothesis test (or two-tailed hypothesis test)
A test in which the null hypothesis is rejected in favor of the alternative hypothesis if the evidence indicates that the population parameter is either smaller or larger than a hypothesized value.
479
Type I error
The error of rejecting a true null hypothesis.
480
Type II error
The error of not rejecting a false null hypothesis.
481
Unbiasedness
Lack of bias. A desirable poperty of estimators, an unbiased estimator is one whose expected value (the mean of its sampling distribution) equals the parameter it is intended to estimate.
482
Unbilled revenue (accrued revenue)
Revenue that has been earned but not yet billed to customers as of the end of an accounting period.
483
Unclassified balance sheet
A balance sheet that does not show subtotals for current assets and current liablitlies.
484
Unconditional heterskedasticity
Heteroskedasticity of the error term that is not correlated with the values of the independent variables(s) in the regression.
485
Unconditional porobability (or marginal probability)
The probability of an event not conditioned on another eevent.
486
Underlying
An asset that trades in a market in which buyers and sellers meet, decide on a price, and the seller then delivers the asset to the buyer and receives payment. The underlying is the asset or other derivative on which a particular derivative is based. The market for the underlying is also referred to as the spot market.
487
Underwritten offering
An offering in which the (lead) investment bank guarantees the sale of the issue at an offering price that it negotiates with the issuer.
488
Unearned fees
Unearned fees are recognized when a company receives cash payment for fees prior to earning them.
489
Unearned revenue (deferred revenue)
A liability account for money that has been collected for goods or services that have not yet been delivered; payment received in advance of providing a good or service.
490
Unemployment rate
The number of unemployed people expressed as a percentage of all the people who have jobs or are looking for one. It is the percentage of the labor force who are unemployed.
491
Unidentifiable intangible
An intangible that cannot be acquired singly and that typically possesses an indefinite benefit period; an example is accounting goodwill.
492
Unit elastic demand
Demand with a price elasticity of 1; the percentage change in the quantity demanded equals the percentage change in price.
493
Unit root
A time series that is not covariance stationary is said to have a unit root.
494
Uniting of interests method
A method of accounting in which combined companies were portrayed as if they had always operated as a single economic entity. Called pooling of interest under U.S. GAAP and uniting of interest under IFRS. (No longer allowed under U.S. GAAP or IFRS.)
495
Units-of-production method
A depreciation method that allocates the cost of a long-loved asset based on actual usage during the period.
496
Univariate distribution
A distribution that specifies the probabilities for a single random variable.
497
Unlimited funds
An unlimited funds environment assumes that the company can raise the funds it wants for all profitable projects simply by paying the required rate of return.
498
Unsponsored depository receipt
A type of depository receipt in which the foreign company whose shares are held by the depostory has no involvement in the issuance of the receipts.
499
Up transition probability
The probability that an asset's value moves up.
500
Upstream
A transaction between two affiliates, an investor company and an associate company such that the associate company records a profit on its income statement. An example is a sale of inventory by the associate to the investor company.
