Test 1 Cfa Glossary A

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Priori probability

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a probability based on logical analysis rather than on observation and personal judgment

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abnormal profit

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equal to accounting profit less the implicit opportunity costs not included in total accounting costs; the difference between total revenue and total costs

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abnormal return

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the amount by which a security's actual returns differs from its expected return, given the securities risk and the market's return

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absolute advantage

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a country's ability to produce a good or service at a lower absolute cost than its trading partner

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absolute dispersion

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

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absolute frequency

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the number of observations in a given interval (for grouped data)

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accelerated book build

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

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accelerated methods

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depreciation methods that allocate a relatively large portion of the cost of an asset to the early years of the asset's useful life

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account

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with the accounting systems, a formal record of increases and decreases in a specific asset, liability, component of owners equity, revenue or expenses.

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accounting (or explicit) costs

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payment to non-owner parties for services or resources they supply to the firm

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accounting loss

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when accounting profit is negative

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accounting profit

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

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accounts payable

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amounts that a business owes to its vendors for goods and services that were purchased from them but which have not yet been paid

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accounts receivable

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amounts customers owe the company for products that have been sold as well as amounts that may be due from supliers (such as for returns of merchandise)

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what are two synonyms for accounts receivable

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-commercial receivables or trade receivables

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accounts receivable turnover

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ratio of sales on credit to the average balance in accounts receivable

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accrued expenses

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liabilities related to expenses that have been incurred but not yet paid as of the end of an accounting period

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what is a synonym of accrued expenses

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accrued liabilities

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accrued interest

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interest earned but not yet paid

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accrued revenue

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revenue that has been earned but not yet billed to customers as of the end of an accounting period

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accumulated depreciation

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an offset to property, plant and equipment reflecting the amount of the cost of PPE that has been allocated to current and previous accounting periods

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acid-test ratio

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a stringent measure of liquidity that indicates a company's ability to satisfy current liabilities with its most liquid asset.

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what is the formula for acid-test ratio

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(cash + short-term marketable investments + receivables) divided by current liabilities

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Acquisition method

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a method of accounting for a business combination where the acquirer is required to measure each identifiable asset and liability at fair value.

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what was the acquisition method a result of

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a joint project of the IASB and FASB aiming at convergence in standards for the accounting of business combinations

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action lag

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delay from policy decision to implementations

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active investments

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

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active return

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

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active strategy

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in reference to short-term cash management, an investment strategy characterized by monitoring and attempting to capitalize on market conditions to optimize the risk and return relationship of short-term investments

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activity ratio

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the ratio of the labor force to total population of working age

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what is activity ratio also called

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participation ratio

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activity ratios

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

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what are two synonyms for activity ratios

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asset utilization ratio
operating efficiency raios

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add-on interest

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a procedure for determining the interest on a bond or loan in which the interest is added onto the face value of a contract

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addition rule for probabilities

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a principle stating that the probability that A or B occurs (both occur) equals the probability that A occurs, plus the probability that B occurs, minus the probability that both A and B occur

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aggregate demad

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the quantity of good and servicies that households, businesses, government and foreign customers want to buy at any given level of prices.

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aggregate demand curve

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inverse relationship between the price level and real output

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aggregate income

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the value of all the payments earned by the suppliers of factors used in the production of goods and services

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aggregate output

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the of all the goods and services produced in a specified period time

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aggregate supply

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the quantity of goods and services producers are willing to supply at any given level of price

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aggregate supply curve

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teh level of domestic output that companies will produce at each price level

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aging schedule

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a breakdown of accounts into categories of days outstanding

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allocationally efficient

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said of a market, a financial system, or economy tha tpromotes the allocation of resources to their highest value uses

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allowance for bad debts

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an offset to accounts receivable for the amount accounts receivable that are estimated to be uncollectible

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alternative investment market

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market for investments other than traditional securities investments
- encompases direct and indirect investment in real esate, commodities, hedge funds, private equity, and other investments requiring specialized due diligence

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alternative trading systmes

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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 sytems

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what are two synonyms for alternative trading systems

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- electronic communications networks
- multilateral trading facilities

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american depository receipt

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a us dollar demoniated security that trades like a common share on us exchanges

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american depository share

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the underlying shares on which american depository recipts are based.

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american option

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an option that can be exercised at any time until its expiration date

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american-style

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said of an option contract can be exercised at any time up to the option's expiration date

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amortisation

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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 bond premium or discount to the periods remaining until bond maturity

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amortised cost

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the historical cost (initially recognised cost) of an asset, adjusted for amortisation and impairment

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amortizing bond

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bond with a payment schedule that calls for periodic payments of interest and repayments of principal

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annual percentage rate

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the cost of borrowing expressed as a yearly rate

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annuity

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a finite set of level sequential cash flows

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annuity due

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an annuity having a first cash flow that is paid immediately

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anticipation stock

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excess inventory that is held in anticipation of increased demand, often because of seasonal patterns of demand

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antidilutive

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- with reference to a transaction or a security one that would increase earning per share or result in eps higher than the company's basic EPS

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what are antidilutive securities not included in

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calculation of diluted EPS

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what are the three types of arbitrage

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1- the simultaneous purchase of an undervalued asset or portforlio 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 not risk with no commitment of money. In a well functioning market, few arbitrage opportunities are possible
3- a risk free operation that earns an expected positive net profit but requires no net investment of money

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arbitrageurs

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traders who engage in arbitrage

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arc elasticity

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an elasticity based on two points, in contrast with (point) elasticity. With reference to price elasticity the percentage change in quantity demanded divided by the percentage change in price between two points for price

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arithmetic mean

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the sum of observations divided by the number of observations

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arms index

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a flow of funds indicator applied to a broad stock market index to measure the relative extend to which money is moving into or out of rising and declining stocks

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ascending price auction

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an auction in which an auctioneer calls out prices for a single item and potential buyers bid directly against each other with each subsequent bid being higher than the previous one

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asian call option

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- a european-style option with a value at maturity equal to the difference between the stock price at maturity and the average stock price during the life of the option or $0, which ever is greater

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ask

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the price at which a dealer or trader is willing to sell an asset, typically qualified by a maximum quanitity

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ask size

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the maximum quantity an asset that pertains to a specific ask price from a trader

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asset allocation

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

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asset beta

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

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asset class

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a group of assets tha thave similar characteristics, attributes, and risk/return relationships

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asset swap

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converts the periodic fixed coupon of a specific bond to libor plus or minus a spread

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asset utilization ratios

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

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asset-based loan

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a loan that is secured with company assets

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asset-based valuation models

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valuation based on estimates of the market value of a company's assets

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assets

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resources controlled by an enterprise as a result of past events and from which future economic benefits to the enterprise are expected to flow

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assignment of accounts receivable

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the use of accounts receivable as collateral for a loan

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at the money

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an option in which the underlying price equals the exercise price

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auction

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a type of bond issing mechanism often used for sovereign bonds that involves bidding

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autarkic price

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the price of a good or service in an autarkic economy

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autarky

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a state in which a country does not trade with other countries

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automated clearing house

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an electronic payment network available to business, individuals and financial institutions in the US, US territories, and canada

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automatic stabilizer

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a countercyclical factor that automatically comes into play as an economy slows and unemployment rises

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available-for-sale

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debt and equity securities not classified as either held-to-maturity or held-for-trading securities. The investor is wiling to sell but not actively planning to sell. In General, available-for-sale secuirties are reported at fair value of the balance sheet.

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average fixed cost

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total fixed cost divided by quantity

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average product

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measures the productivity of inputs on average and is calculated by dividing total product by the total number of units for a given input that is used to generate the output

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average revenue

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quantity sold divided into total revenue

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average total cost

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total costs divided by quantity

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average variable cost

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total variable cost divided by quantity