CFA portal

Question 1

1 Abandonment option

Answer 1

The option to terminate an investment at some future time if the financial results are disappointing.

Question 2

Abnormal return

Answer 2

The amount by which a security’s actual return differs from its expected return, given the security’s risk and
the market’s return.

Question 3

Absolute dispersion

Answer 3

The amount of variability present without comparison to any reference point or benchmark.

Question 4

Accelerated book build

Answer 4

An offering of securities by an investment bank acting as principal that is accomplished in only one or two
days.

Question 5

5 Accounting profifit

Answer 5

Income as reported on the income statement, in accordance with prevailing accounting standards, before the
provisions for income tax expense. Also called income before taxes or pretax income.

Question 6

Accredited investors

Answer 6

Investors that meet certain minimum regulatory net worth or other requirements in order to invest in certain
types of alternative assets.

Question 7

Accrued interest

Answer 7

The amount of interest in currency or par value terms of a fixed-income instrument that accumulates

Question 8

Action lag n.

Answer 8

Delay from policy decisions to implementatio

Question 9

9 Active investment

Answer 9

An approach to investing in which the investor seeks to outperform a given benchmark.

Question 10

10 Active return .

Answer 10

The return on a portfolio minus the return on the portfolio’s benchmark

Question 11

11 Activist

Answer 11

Short for “activist shareholder.” Managers secure sufficient equity holdings to allow them to seek a position in
a company’s board and influence corporate policies or direction.

Question 12

12 Activity ratios

Answer 12

Ratios that measure how well a company is managing key current assets and working capital over time.

Question 13

Ad hoc committee

Answer 13

A small group of lenders or bondholders who negotiate with an issuer on debt restructuring and refinancing before the issuer submits a final proposal to the wider group of all lenders and bondholders.

Question 14

Add-on pricing

Answer 14

A pricing approach based on high-margin optional features, customizations, and additional content.

Question 15

15 Add-on rate

Answer 15

A yield or pricing convention for money market instrument quotations. It is the interest earned on an
instrument, derived from the difference between the price and face value, expressed as a percentage of the
price and multiplied by the periodicity of the annual rate.

Question 16

16 Agency costs

Answer 16

Direct and indirect costs borne by the principal in a principal-agent relationship owing primarily to information
asymmetries. Agency costs include the costs of monitoring and assessing the agent as well as missed
opportunities.

Question 17

17 Agency RMBS

Answer 17

Securities created by the pooling of residential mortgage-backed securities in the United States by either the
Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation
(Freddie Mac). These RMBS carry the full faith and credit of the government, essentially a guarantee with
respect to timely payment of interest and repayment of principal.

Question 18

18 Allocationally effificient

Answer 18

A characteristic of a market, a financial system, or an economy that promotes the allocation of resources to
their highest value uses.

Question 19

19 All-or-nothing (AON) orders

Answer 19

An order that includes the instruction to trade only if the trade fills the entire quantity (size) specified

Question 20

20 Altcoin

Answer 20

A cryptocurrency other than Bitcoin.

Question 21

21 Alternative data

Answer 21

Data that are generated from non-traditional sources, such as social media and sensor networks.

Question 22

22 Alternative hypothesis

Answer 22

The hypothesis that is accepted if the null hypothesis is rejected.

Question 23

23 Alternative investment markets

Answer 23

Market for investments other than traditional securities investments (i.e., traditional common and preferred
shares and traditional fixed income instruments). The term usually encompasses direct and indirect investment
in real estate (including timberland and farmland) and commodities (including precious metals); hedge funds,
private equity, and other investments requiring specialized due diligence.

Question 24

24 Alternative trading systems

Answer 24

Trading venues that function like exchanges but that do not exercise regulatory authority over their subscribers
except with respect to the conduct of the subscribers’ trading in their trading systems. Also called electronic
communications networks or multilateral trading facilities.

Question 25

25 American depository receipt

Answer 25

A US dollar-denominated security that trades like a common share on US exchanges.

Question 26

26 American depository share

Answer 26

The underlying shares on which American depository receipts are based. They trade in the issuing company’s
domestic market.

Question 27

27 American options

Answer 27

Options that may be exercised at any time from contract inception until maturity.

Question 28

28 American-style

Answer 28

Type of option contract that can be exercised at any time up to the option’s expiration date.

Question 29

29 Amortization

Answer 29

The process of allocating the cost of intangible long-term assets having a finite useful life to accounting
periods; the allocation of the amount of a bond premium or discount to the periods remaining until bond
maturity.

Question 30

30 Amortizing debt

Answer 30

A loan or bond with a payment schedule that calls for periodic payments of interest and repayments of
principal.

Question 31

31 Analysis of variance (ANOVA)

Answer 31

A table that presents the sums of squares, degrees of freedom, mean squares, and F-statistic for a regression
model.

Question 32

Analytical duration

Answer 32

Estimates of duration using mathematical formulas. Estimates of the impact of yield changes on bond prices
using analytical duration

Question 33

Anchoring and adjustment bias

Answer 33

An information-processing bias in which the use of a psychological heuristic influences the way people
estimate probabilities.

Question 34

Annual general meeting (AGM)

Answer 34

A yearly meeting of the corporate board of directors and shareholders, typically held in person and digitally,
during which votes on directors, compensation plans, shareholder resolutions, and any other matters properly
brought forward at the meeting are held. Issuer management may also make presentations and hold events.

Question 35

Anomalies

Answer 35

Apparent deviations from market efficiency.

Question 36

Antidilutive

Answer 36

With reference to a transaction or a security, one that would increase earnings per share (EPS) or result in EPS
higher than the company’s basic EPS—antidilutive securities are not included in the calculation of diluted
EPS.

Question 37

Arbitrage

Answer 37

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.

Question 38

Arbitrageurs

Answer 38

Traders who engage in arbitrage. See arbitrage.

Question 39

Arithmetic mean

Answer 39

The sum of the observations divided by the number of observations.

Question 40

Artifificial intelligence (AI)

Answer 40

Computer systems that are capable of performing tasks that previously required human intelligence. AI
methods are sometimes better suited to identify complex, non-linear relationships than are traditional
quantitative and statistical methods.

Question 41

41 Ask size

Answer 41

The maximum quantity of an asset that pertains to a specific ask price from a trader. For example, if the ask for
a share issue is $30 for a size of 1,000 shares, the trader is offering to sell at $30 up to 1,000 shares.

Question 42

Ask

Answer 42

The price at which a dealer or trader is willing to sell an asset, typically qualified by a maximum quantity (ask
size). See offer.

Question 43

Asset allocation

Answer 43

The process of determining how investment funds should be distributed among asset classes.

Question 44

Asset class

Answer 44

A group of assets that have similar characteristics, attributes, and risk–return relationships.

Question 45

Asset utilization ratios

Answer 45

Ratios that measure how efficiently a company performs day-to-day tasks, such as the collection of receivables
and management of inventory.

Question 46

Asset-backed commercial paper

Answer 46

Secured form of commercial paper issuance. Loans or receivables are sold to a special purpose entity that
issues the ABCP and makes interest and principal payments to investors from asset cash flows.