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CFA Level I - 2.0 - 2020 > Definition 2. M & I > Flashcards

Definition 2. M & I Flashcards

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1
Q

M^2

A

A measure of what a portfolio would have returned if it had taken on the same total risk as the market index.

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2
Q

M^2 alpha

A

Difference between the risk-adjusted performance of the portfolio and the performance of the benchmark.

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3
Q

Macaulay duration

A

The approximate amount of time a bond would have to be held for the market discount rate at pur- chase to be realized if there is a single change in interest rate. It indicates the point in time when the coupon rein- vestment and price effects of a change in yield-to- maturity offset each other.

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4
Q

Machine learning

A

Computer based techniques that seek to extract knowledge from large amounts of data by “learn- ing” from known examples and then generating structure or predictions. ML algorithms aim to “find the pattern, apply the pattern.”

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5
Q

Macroeconomics

A

The branch of economics that deals with aggregate economic quantities, such as national output and national income.

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6
Q

Maintenance covenants

A

Covenants in bank loan agreements that require the borrower to satisfy certain financial ratio tests while the loan is outstanding.

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7
Q

Maintenance margin

A

The minimum amount that is required by a futures clearinghouse to maintain a margin account and to protect against default. Participants whose margin balances drop below the required maintenance margin must replenish their accounts

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8
Q

Maintenance margin requirement

A

The margin requirement on any day other than the first day of a transaction.

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9
Q

Management buy-ins

A

Leveraged buyout in which the current

management team is being replaced and the acquiring team will be involved in managing the company.

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10
Q

Management buyout

A

A leveraged buyout event in which a group of investors consisting primarily of the company’s existing management purchase at least controlling interest in its outstanding shares. At the extreme, they may pur-
chase all shares and take the company private.

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11
Q

Management fee

A

A fee based on assets under management or committed capital, as applicable, also called a base fee.

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12
Q

Manufacturing resource planning (MRP)

A

The incorporation of production planning into inventory management. A MRP analysis provides both a materials acquisition schedule and a production schedule.

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13
Q

Margin

A

The amount of money that a trader deposits in a margin account. The term is derived from the stock mar- ket practice in which an investor borrows a portion of the money required to purchase a certain amount of stock. In futures markets, there is no borrowing so the margin is more of a down payment or performance bond.

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14
Q

Margin bond

A

A cash deposit required by the clearinghouse from the participants to a contract to provide a credit guarantee. Also called a performance bond.

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15
Q

Margin call

A

A request for the short to deposit additional funds to bring their balance up to the initial margin.

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16
Q

Margin loan

A

Money borrowed from a broker to purchase securities.

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17
Q

Marginal cost

A

The cost of producing an additional unit of a good.

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18
Q

Marginal probability

A

The probability of an event not conditioned on another event.

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19
Q

Marginal product

A

Measures the productivity of each unit of input and is calculated by taking the difference in total product from adding another unit of input (assuming other resource quantities are held constant).

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20
Q

Marginal propensity to consume

A

The proportion of an additional unit of disposable income that is consumed or spent; the change in consumption for a small change in income.

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21
Q

Marginal propensity to save

A

The proportion of an additional unit of disposable income that is saved (not spent).

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22
Q

Marginal revenue

A

The change in total revenue divided by

the change in quantity sold; simply, the additional revenue from selling one more unit.

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23
Q

Marginal value curve

A

A curve describing the highest price

consumers are willing to pay for each additional unit of a good.

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24
Q

Mark to market

A

The revaluation of a financial asset or liability

to its current market value or fair value.

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25
Q

Market anomaly

A

Change in the price or return of a security
that cannot directly be linked to current relevant information known in the market or to the release of new information into the market.

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26
Q

Market bid–ask spread

A

The difference between the best bid and the best offer.

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27
Q

Market-capitalization weighting

A

An index weighting method in which the weight assigned to each constituent security is determined by dividing its market capitalization by the total market capitalization (sum of the market capitalization) of all securities in the index. Also called value weighting.

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28
Q

Market discount rate

A

The rate of return required by investors given the risk of the investment in a bond; also called the required yield or the required rate of return.

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29
Q

Market float

A

The number of shares that are available to the investing public.

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30
Q

Market liquidity risk

A

The risk that the price at which investors can actually transact—buying or selling—may differ from the price indicated in the market.

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31
Q

Market model

A

A regression equation that specifies a linear relationship between the return on a security (or portfolio) and the return on a broad market index.

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32
Q

Market multiple models

A

Valuation models based on share price multiples or enterprise value multiples.

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33
Q

Market-on-close

A

An execution instruction specifying that an order can only be filled at the close of trading.

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34
Q

Market order

A

Instructions to a broker or exchange to obtain the best price immediately available when filling an order.

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35
Q

Market-oriented investors

A

With reference to equity investors, investors whose investment disciplines cannot be clearly categorized as value or growth.

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36
Q

Market rate of interest

A

The rate demanded by purchasers of

bonds, given the risks associated with future cash payment obligations of the particular bond issue.

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37
Q

Market risk

A

The risk that arises from movements in interest rates, stock prices, exchange rates, and commodity prices.

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38
Q

Market value

A

The price at which an asset or security can

currently be bought or sold in an open market.

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39
Q

Marketable limit order

A

A buy limit order in which the limit price is placed above the best offer, or a sell limit order in which the limit price is placed below the best bid. Such orders generally will partially or completely fill right away.

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40
Q

Markowitz efficient frontier

A

The graph of the set of portfolios offering the maximum expected return for their level of risk (standard deviation of return).

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41
Q

Mutually exclusive projects

A

Mutually exclusive projects com- pete directly with each other. For example, if Projects A and B are mutually exclusive, you can choose A or B, but you cannot choose both.

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42
Q

Matching principle

A

The accounting principle that expenses should be recognized in the same period in which the associated revenue is recognized.

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43
Q

Matching strategy

A

An active investment strategy that includes intentional matching of the timing of cash outflows with investment maturities.

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44
Q

Matrix pricing

A

Process of estimating the market discount rate and price of a bond based on the quoted or flat prices of more frequently traded comparable bonds.

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45
Q

Maturity premium

A

An extra return that compensates investors for the increased sensitivity of the market value of debt to a change in market interest rates as maturity is extended.

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46
Q

Maturity structure

A

A factor explaining the differences in yields on similar bonds; also called term structure.

47
Q

Mean absolute deviation

A

With reference to a sample, the mean of the absolute values of deviations from the sample mean.

48
Q

Mean–variance analysis

A

An approach to portfolio analysis using expected means, variances, and covariances of asset returns.

49
Q

Measure of central tendency

A

A quantitative measure that specifies where data are centered.

50
Q

Measure of value

A

A standard for measuring value; a function of money.

51
Q

Measurement scales

A

A scheme of measuring differences. The four types of measurement scales are nominal, ordinal, interval, and ratio.

52
Q

Measures of location

A

A quantitative measure that describes the location or distribution of data; includes not only measures of central tendency but also other measures such as percentiles.

53
Q

Median

A

The value of the middle item of a set of items that has been sorted into ascending or descending order; the 50th percentile.

54
Q

Medium of exchange

A

Any asset that can be used to purchase goods and services or to repay debts; a function of money.

55
Q

Medium-term note

A

A corporate bond offered continuously to investors by an agent of the issuer, designed to fill the fund- ing gap between commercial paper and long-term bonds.

56
Q

Menu costs

A

A cost of inflation in which businesses constantly have to incur the costs of changing the advertised prices
of their goods and services.

57
Q

Mesokurtic

A

Describes a distribution with kurtosis identical

to that of the normal distribution.

58
Q

Mezzanine financing

A

Debt or preferred shares with a relationship to common equity resulting from a feature such as attached warrants or conversion options. Mezzanine financing is subordinate to both senior and high-yield debt but is senior to equity. It is referred to as “mezzanine” because of its location on the balance sheet.

59
Q

Microeconomics

A

The branch of economics that deals with markets and decision making of individual economic units, including consumers and businesses.

60
Q

Minimum efficient scale

A

The smallest output that a firm can produce such that its long-run average total cost is minimized.

61
Q

Minimum-variance portfolio

A

The portfolio with the minimum variance for each given level of expected return.

62
Q

Minority shareholders

A

A particular shareholder or block of shareholders holding a small proportion of a company’s outstanding shares, resulting in a limited ability to exercise control in voting activities.

63
Q

Minsky moment

A

Named for Hyman Minksy: A point in a business cycle when, after individuals become overextended in borrowing to finance speculative investments, people start realizing that something is likely to go wrong and a panic ensues leading to asset sell-offs.

64
Q

Mismatching strategy

A

An active investment strategy whereby the timing of cash outflows is not matched with investment maturities.

65
Q

Modal interval

A

With reference to grouped data, the most frequently occurring interval.

66
Q

Mode

A

The most frequently occurring value in a set of observations.

67
Q

Modern portfolio theory

A

(MPT) The analysis of rational portfolio choices based on the efficient use of risk.

68
Q

Modified duration

A

A measure of the percentage price change

of a bond given a change in its yield-to-maturity.

69
Q

Momentum oscillators

A

A graphical representation of market sentiment that is constructed from price data and calculated so that it oscillates either between a high and a low
or around some number.

70
Q

Monetarists

A

Economists who believe that the rate of growth of the money supply is the primary determinant of the
rate of inflation.

71
Q

Monetary policy

A

Actions taken by a nation’s central bank to
affect aggregate output and prices through changes in bank
reserves, reserve requirements, or its target interest rate.

72
Q

Monetary transmission mechanism

A

The process whereby a central bank’s interest rate gets transmitted through the economy and ultimately affects the rate of increase
of prices.

73
Q

Monetary union

A

An economic union in which the members

adopt a common currency.

74
Q

Money

A

A generally accepted medium of exchange and unit

of account.

75
Q

Money convexity

A

For a bond, the annual or approximate

convexity multiplied by the full price.

76
Q

Money creation

A

The process by which changes in bank

reserves translate into changes in the money supply.

77
Q

Money duration

A

A measure of the price change in units of the currency in which the bond is denominated given a
change in its yield-to-maturity.

78
Q

Money market

A

The market for short-term debt instruments

one-year maturity or less

79
Q

Money market securities

A

Fixed-income securities with matur-

ities at issuance of one year or less.

80
Q

Money market yield

A

A yield on a basis comparable to the
quoted yield on an interest-bearing money market instru- ment that pays interest on a 360-day basis; the annualized holding period yield, assuming a 360-day year.

81
Q

Money multiplier

A

Describes how a change in reserves is expected to affect the money supply; in its simplest form, 1 divided by the reserve requirement.

82
Q

Money neutrality

A

The thesis that an increase in the money supply leads in the long-run to an increase in the price level, while leaving real variables like output and employ- ment unaffected.

83
Q

Money-weighted return

A

The internal rate of return on a portfolio, taking account of all cash flows.

84
Q

Moneyness

A

The relationship between the price of the under- lying and an option’s exercise price.

85
Q

Monopolistic competition

A

Highly competitive form of imper- fect competition; the competitive characteristic is a notably large number of firms, while the monopoly aspect is the result of product differentiation.

86
Q

Monopoly

A

In pure monopoly markets, there are no substi- tutes for the given product or service. There is a single seller, which exercises considerable power over pricing and output decisions.

87
Q

Monte Carlo simulation

A

An approach to estimating a prob- ability distribution of outcomes to examine what might happen if particular risks are faced. This method is widely used in the sciences as well as in business to study a variety of problems.

88
Q

Moral principles

A

Beliefs regarding what is good, acceptable, or obligatory behavior and what is bad, unacceptable, or forbidden behavior.

89
Q

Mortgage-backed securities

A

Debt obligations that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property.

90
Q

Mortgage loan

A

A loan secured by the collateral of some specified real estate property that obliges the borrower to make a predetermined series of payments to the lender.

91
Q

Mortgage pass-through security

A

A security created when one or more holders of mortgages form a pool of mortgages and sell shares or participation certificates in the pool.

92
Q

Mortgage rate

A

The interest rate on a mortgage loan; also called contract rate or note rate.

93
Q

Moving average

A

The average of the closing price of a security over a specified number of periods. With each new period, the average is recalculated.

94
Q

Moving-average convergence/divergence oscilla- tor

A

(MACD) A momentum oscillator that is constructed based on the difference between short-term and long-term moving averages of a security’s price.

95
Q

Multi-factor model

A

A model that explains a variable in terms of the values of a set of factors.

96
Q

Multi-market indexes

A

Comprised of indexes from different countries, designed to represent multiple security markets.

97
Q

Multi-step format

A

With respect to the format of the income statement, a format that presents a subtotal for gross profit
(revenue minus cost of goods sold).

98
Q

Multilateral trading facilities

A

See alternative trading systems.

99
Q

Multinational corporation

A

A company operating in more
than one country or having subsidiary firms in more than
one country.

100
Q

Multiplication rule for probabilities

A

The rule that the joint
probability of events A and B equals the probability of A
given B times the probability of B.

101
Q

Multiplier models

A

Valuation models based on share price

multiples or enterprise value multiples.

102
Q

Multivariate distribution

A

A probability distribution that
specifies the probabilities for a group of related random
variables.

103
Q

Multivariate normal distribution

A

A probability distribution
for a group of random variables that is completely defined by the means and variances of the variables plus all the correlations between pairs of the variables.

104
Q

Municipal bonds

A

A type of non-sovereign bond issued by a state or local government in the United States. It very often (but not always) offers income tax exemptions.

105
Q

Munis

A

A type of non-sovereign bond issued by a state or local government in the United States. It very often (but not always) offers income tax exemptions.

106
Q

Mutual fund

A

A comingled investment pool in which investors in the fund each have a pro-rata claim on the income and value of the fund.

107
Q

I-spread

A

The yield spread of a specific bond over the standard

swap rate in that currency of the same tenor.

108
Q

Iceberg order

A

An order in which the display size is less than

the order’s full size.

109
Q

If-converted method

A

A method for accounting for the effect
of convertible securities on earnings per share (EPS) that specifies what EPS would have been if the convertible secu- rities had been converted at the beginning of the period, taking account of the effects of conversion on net income and the weighted average number of shares outstanding.

110
Q

Immediate or cancel order

A

An order that is valid only upon receipt by the broker or exchange. If such an order can- not be filled in part or in whole upon receipt, it cancels immediately. Also called fill or kill.

111
Q

Impact lag

A

The lag associated with the result of actions affect- ing the economy with delay.

112
Q

Implicit price deflator for GDP

A

A gauge of prices and inflation that measures the aggregate changes in prices across the overall economy.

113
Q

Implied forward rates

A

Calculated from spot rates, an implied forward rate is a break-even reinvestment rate that links the return on an investment in a shorter-term zero-coupon bond to the return on an investment in a longer-term zero-coupon bond.

114
Q

Implied volatility

A

The volatility that option traders use to price an option, implied by the price of the option and a particular option-pricing model.

CFA Level I - 2.0 - 2020 (4 decks)

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