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Flashcards in CFA #3 Deck (500)
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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
Q

Paired comparisons test

A

A statistical test for differences based on paired observations drawn from samples that are dependent on each other.

26
Q

Paired observations

A

Observations that are dependent on each other.

27
Q

Pairs arbitrage trade

A

A trade in two closely related stocks involving the short sale of one and the purchase of the other.

28
Q

Panel data

A

Observations though time on a single characteristic of multiple obvservational units.

29
Q

Parameter

A

A descriptive measure computed from or used to describe a population of data, conventionally represented by Greek letters.

30
Q

Parameter instability

A

The problem or issue of population regression paramters that have changed over time.

31
Q

Parametric test

A

Any test ( or procedure) concerned with parameters or whose validity depends on assumptions concerning the poulation generating the sample.

32
Q

Partial regression coefficients or partial slope coefficients

A

The slope coefficients in a multiple in a multiple regression.

33
Q

Participating preference shares

A

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
Q

Partnership

A

A business owned and operated by more than one individual.

35
Q

Passive investment

A

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
Q

Passive strategy

A

In reference to short-term cash management, it is an investment strategy characterized by simple decision rules for making daily investments.

37
Q

Payables turnover

A

An activity ratio calculated as purchases divided by average trade payables.

38
Q

Payer swaption

A

A swaption that allows the holder to enter into a swap as the fixed-rate payer and floating-rate receiver.

39
Q

Payment date

A

The day that a company actually mails out (or electronically transfers) a dividend payment.

40
Q

Payment netting

A

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
Q

Payoff

A

The value of an option at expiration.

42
Q

Payoff matrix

A

A table that shows the payoffs for every possible action by each player for ever possible action by each other player.

43
Q

Payout

A

Cash dividends and the value of shares repurchased in any given year.

44
Q

Payout policy

A

A company’s set of principles guiding payouts.

45
Q

Payout ratio

A

The percentage of total earnings paid out in dividends in any given year (in per-share terms, DPS/EPS).

46
Q

Pecking order theory

A

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
Q

Peer group

A

A group of companies engaged in similar business activities whose economics and valuation are influenced by closely related factors.

48
Q

Pennants

A

A technical analysis continuation pattern formed by trendlines that converge to form a triangle, typically over a short period.

49
Q

Per unit contribution margin

A

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
Q

Percentage-of-completion

A

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
Q

Percentiles

A

Quantiles that divide a distribution into 100 equal parts.

52
Q

Perfect collinearity

A

The existence of an exact linear relation between two or more independent variables or combinations of independent variables.

53
Q

Perfect competition

A

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
Q

Perfect price discrimination

A

Price discrimination that extracts the entire consumer surplus.

55
Q

Perfectly elastic demand

A

Demand with an infinite price elasticity; the quantity demanded changes by an infinitely large percentage in response to a tiny change in price.

56
Q

Perfectly inelastic demand

A

Demand with a price elasticity of zero; the quantity demanded remains constant when the price changes.

57
Q

Performance appraisal

A

The evaluation of risk-adjusted performance; the evaluation of inevestment skill.

58
Q

Performance evaluation

A

The measurement and assessment of the outcomes of investment management decisions.

59
Q

Performance guarantee

A

A guarantee from the clearinghouse that if one party makes money on a transaction, the clearinghouse ensures it will be paid.

60
Q

Performance measurement

A

The calculation of returns ina logical and consistent manner.

61
Q

Period costs

A

Costs (e.g., executives’ salaries) that cannot be directly matched with the timing of revenues and which are thus expensed immediately.

62
Q

Periodic rate

A

The quoted inerest rate per period; the stated annual interest rate divided by the number of compounding periods per year.

63
Q

Permanent differences

A

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
Q

Permutation

A

An ordered listing.

65
Q

Perpetuity

A

A perpetual annuity, or a set of never-ending level sequential cash flows, with the first cash flow occurring one period from now.

66
Q

Pet projects

A

Projects in which influential managers want the corporation to invest. Often, unfortunately, pet projects are selected without undergoing normal capital budgeting analysis.

67
Q

Phillips curve

A

A curve that shows a relationship between inflation and unemployment.

68
Q

Plain vanilla swap

A

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
Q

Platykurtic

A

Describes a distribution that is less peaked than the normal distribution.

70
Q

Point and figure chart

A

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
Q

Point estimate

A

A single numerical estimate of an unknown quantity, such as a population parameter.

72
Q

Point of sale

A

Systems that capture transaction data at the physical location in which the sale is made.

73
Q

Poison pill

A

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
Q

Poison puts

A

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
Q

Pooled estimate

A

An estimate of a parameter that involves combining (pooling) observations from two or more samples.

76
Q

Pooling of interests accounting method

A

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
Q

Population

A

All members of a specific group.

78
Q

Population mean

A

The arithmetic mean value of a population; the arithmetic mean of all the observations or values in the population.

79
Q

Population standard deviation

A

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
Q

Population variance

A

A measure of dispersion relating to a population , calculated as the mean of the squared deviations around the population mean.

81
Q

Portfolio performance attribution

A

The analysis of portfolio performance in terms of the contributions from various sources of of risk.

82
Q

Portfolio planning

A

The process of creating a plan for building a portfolio that is expected to satisfy a client’s investment objectives.

83
Q

Portfolio possibilities curve

A

A graphical representation of the expected return and risk of all portfolios that can be formed using two assets.

84
Q

Position

A

The quantity of an aset that an entity owns or owes.

85
Q

Position trader

A

A trader who typically holds positions open overnight.

86
Q

Positive serial correlation

A

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
Q

Posterior probability

A

An updated probability that reflects or comes after new information.

88
Q

Potential credit risk

A

The risk associated with the possibility that a payment due at a later date will not be made.

89
Q

Potential GDP

A

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
Q

Power of a test

A

The probability of correctly rejecting the null–that is, rejecting the null hypothesis when it is false.

91
Q

Precautionary stocks

A

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
Q

Preference shares (or preferred stock)

A

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
Q

Preferred sock

A

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
Q

Pre-investing

A

The strategy of using futures contracts to enter the market without an immediate outlay of cash.

95
Q

Prepaid expense

A

A normal operating expense that has been paid in advance of when it is due.

96
Q

Present (price) value of a basis point (PVBP)

A

The change in the bond price for a 1 basis point change in yield. Also called basis point value (BPV).

97
Q

Present value (PV)

A

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
Q

Present value models (or discounted cash flow models)

A

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
Q

Presentation currency

A

The currency in which financial statement amounts are presented.

100
Q

Pretax margin

A

A profitability ratio calculated as earnings before taxes divided by revenue.

101
Q

Price ceiling

A

A regulation that makes it illegal to charge a price higher than a specified level.

102
Q

Price discovery

A

A feature of futures markets in which futures prices provide valuable information about the price of the underlying asset.

103
Q

Price discrimination

A

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
Q

Price elasticity of demand

A

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
Q

Price floor

A

A regulation that makes it illegal to trade at a price lower than a specified level.

106
Q

Price limits

A

Limits imposed by a futures exchange on the price change that can occur from one day to the next.

107
Q

Price multiple

A

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
Q

Price priority

A

The principle that the highest priced buy orders and the lowest priced sell orders execute first.

109
Q

Price relative

A

A ratio of an ending price over a beginning price; it is equal to 1 plus the holding period return on the asset.

110
Q

Price return

A

Measures only the price apprecation or percentage change in price of the securities in the index or portfolio.

111
Q

Price return index (or price index)

A

An index that reflects only the price apprecation or percentage change in price of the constituent securities.

112
Q

Price taker

A

A firm that cannot influence the price of the good or service it produces.

113
Q

Price to book value

A

A valuation ratio calculated as price per share divided by book value per share.

114
Q

Price to cash flow

A

A valuation ratio calculated as price per share divided by cash flow per share.

115
Q

Price to sales

A

A valuation ratio calculated as price per share divided by sales per share.

116
Q

Price weighting

A

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
Q

Price/earnings (P/E) ratio

A

The ratio of share pirce to earnings per share.

118
Q

Priced risk

A

Risk for which investors demand compensation for bearing (e.g. equity risk, company-specific factors, macroeconomic factors).

119
Q

Price-setting option

A

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
Q

Price-weighted index

A

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
Q

Primary market

A

The market where securties are first sold and the issuers receive the proceeds.

122
Q

Principal

A

The amount of funds originally invested in a project or instrument; the face value to be paid at maturity.

123
Q

Principal business activity

A

The business activity from which a company derives a majority of its revenues and/or earnings.

124
Q

Principal-agent problem

A

The problem of devising compensation rules that induce an agent to act in the best interest of a principal.

125
Q

Prior probabilities

A

Probabilities reflecting beliefs prior to the arrival of new information.

126
Q

Private equity securities

A

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
Q

Private investment in public equity

A

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
Q

Private placement

A

When corporations sell securities directly to a small group of qualified investors, usually with the assistance of an investment bank.

129
Q

Probability

A

A number between 0 and 1 describing the chance that a stated event will occur.

130
Q

Probability density function

A

A function with non-negative values such that probability can be described by areas under the curve graphing the function.

131
Q

Probability distribution

A

A distribution that specifies the probabilities of a random variable’s possible outcomes.

132
Q

Probability function

A

A function that specifies the probability that the random variable takes on a specific value.

133
Q

Probit model

A

A qualitative-dependent-variable multiple regression model based on the normal distribution.

134
Q

Producer surplus

A

The price of a good minus its minimum supply-price, summed over the quantity sold.

135
Q

Product differentiation

A

Making a product slightly different from the product of a competing firm.

136
Q

Production quota

A

An upper limit to the quantity of a good that may be produced in a specific period.

137
Q

Production-flexibility

A

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
Q

Profitability ratios

A

Ratios that measure a company’s ability to generate profitable sales from its resources (assets).

139
Q

Project sequencing

A

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
Q

Projected benefit obligation

A

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
Q

Property, plans, and equipment

A

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
Q

Proportionate consolidation

A

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
Q

Protective put

A

An option strategy in which a long position in an asset is combined with a long position in a put.

144
Q

Provision

A

In accounting, a liability of uncertain timing or amount.

145
Q

Proxy fight

A

An attempt to take control of a company through a shareholder vote.

146
Q

Proxy statement

A

A public document that provides the material facts concerning matters on which shareholders will vote.

147
Q

Pseudo-random numbers

A

Numbers produced by random number generators.

148
Q

Pull on liquidity

A

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
Q

Purchase method

A

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
Q

Purchased in-process research and development costs

A

The costs of research and development in progress at an acquired company.

151
Q

Purchasing power gain

A

A gain in value caused by changes in price levels. Monetary liabilities experience purchasing power gains during periods of inflation.

152
Q

Purchasing power loss

A

A loss in value caused by changes in price levels. Monetary assets experience purchasing power losses during periods of inflation.

153
Q

Pure discount instruments

A

Instruments that pay interest as the difference between the amount borrowed and the amount paid back.

154
Q

Pure factor portfolio

A

A portfolio with sensitivity of 1 to the factor in question and a sensitivity of 0 to all other factors.

155
Q

Pure-play method

A

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
Q

Put

A

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
Q

Put/call ratio

A

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
Q

Putable common shares

A

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
Q

Put-call parity

A

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
Q

Put-call-forward parity

A

The relationship among puts, calls, and forward contracts.

161
Q

p-Value

A

The smallest level of significance at which the null hypothesis can be rejectetd; also called the marginal significance level.

162
Q

Qualifying special purpose entities

A

Under U.S. GAAP, a special purpose entity structure to avoid consolidation that must meet qualification criteria.

163
Q

Qualitative dependent variable

A

Dummy variables used as dependent variables rather than as independent variables.

164
Q

Quantile (or fractile)

A

A value at or below which a stated fraction of the data lies.

165
Q

Quantity theory of money

A

The proposition that in the long run, an increase in the quantity of money brings an equal percentage increase in the price level.

166
Q

Quartiles

A

Quantiles that divide a distribution into four equal parts.

167
Q

Quick assets

A

Assets that can be most readily converted to cash (e.g., cash, short-term marketable investments, receivables).

168
Q

Quick ratio, or acid test ratio

A

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
Q

Quintiles

A

Quantiles that divide a distribution into five equal parts.

170
Q

Quote-driven market

A

A market in which dealers acting as principals facilitate trading.

171
Q

Random number

A

An observation drawn from a uniform distribution.

172
Q

Random number generator

A

An algorithm that produces uniformly distributed random numbers between 0 and 1.

173
Q

Random variable

A

A quantity whose future outcomes are uncertain.

174
Q

Random walk

A

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
Q

Range

A

The difference between the maximum and minimum values in a dataset.

176
Q

Ratio scales

A

A measurement scale that has all the characteristics of interval measurement scales as well as a true zero point as the origin.

177
Q

Ratio spread

A

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
Q

Rational expectation

A

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
Q

Real business cycle theory

A

A theory of the business cycle that regards random fluctuations in productivity as the main source of economic fluctuations.

180
Q

Real exchange rate

A

The relative price of foreign-made goods and services to U.S.-made goods and services.

181
Q

Real risk-free interest rate

A

The single-period interest rate for a completely risk-free security if no inflation were expected.

182
Q

Real wage rate

A

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
Q

Realizable value (settlement value)

A

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
Q

Realized capital gains

A

The gains resulting from the sale of an asset that has appreciated in value.

185
Q

Rebalancing

A

Adjusting the weights of the constituent securities to an index.

186
Q

Rebalancing policy

A

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
Q

Recardo-Barro eequivalence

A

The proposition that taxes and government borrowing are equivalent–a budget deficit has no effect on the real interest rate or investment.

188
Q

Receivables turnover

A

An activity ratio equal to revenue divided by average receivables.

189
Q

Receiver swaption

A

A swaption that allows the holder to enter into a swap as the fixed-rate receiver and floating-rate payer.

190
Q

Recessionary gap

A

The amount by which potential GDP exceeds real GDP.

191
Q

Reference base period

A

The period in which the CPI is defined to be 100.

192
Q

Regime

A

With reference to a time series, the underlying model generating the times series.

193
Q

Regression coefficients

A

The intercept and slope coefficient(s) of a regression.

194
Q

Regulatory risk

A

The risk associated with the uncertainty of how derivative transactions will be regulated or with changes in regulations.

195
Q

Rejection point (or critical value)

A

A value against which a computed test statistic is compared to decide whether to reject or not reject the null hypothesis.

196
Q

Relative dispersion

A

The amount of dispersion relative to a reference value of benchmark.

197
Q

Relative frequency

A

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
Q

Relative strengh index

A

A technical analysis momentum oscillator tha compares a security’s gains with its losses over a set period.

199
Q

Relative strength analysis

A

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
Q

Renewable natural resources

A

Natural resources that can be used repeatedly without depleting what is available for future use.

201
Q

Rent ceiling

A

A regulation that makes it illegal to charge a rent higher than a specified level.

202
Q

Rent seeking

A

The pursuit of weath by capturing economic rent–consumer surplus, producer surplus, or economic profit.

203
Q

Reorganization

A

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
Q

Replacement value

A

The market value of a swap.

205
Q

Report format

A

With respect to the format of a balance sheet, a format in which assets, liabilities, and equity are listed in a single column.

206
Q

Reputational risk

A

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
Q

Required reserve ratio

A

The minimum percentage of deposits that banks are required to hold as reserves.

208
Q

Reserve ratio

A

The fraction of a bank’s total deposits that are held in reserves.

209
Q

Reserves

A

A bank’s reserves consist of notes and coins in its vaults plus its deposit at the Federal Reserve.

210
Q

Residual autocorrelations

A

The sample autocorrelations of the residuals.

211
Q

Residual claim

A

The owners’ remaining claim on the company’s assets after the liabilities are deducted.

212
Q

Residual dividend approach

A

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
Q

Residual loss

A

Agency costs that are incurred despite adequate monitoring and bonding of management.

214
Q

Resistance

A

In technical analysis, a price range in which selling activity is sufficient to stop the rise in the price of a security.

215
Q

Retail method

A

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
Q

Retracement

A

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
Q

Return on assets (ROA)

A

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
Q

Return on common equity (ROCE)

A

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
Q

Return on equity (ROE)

A

A profitability ratio calculated as net income divided by average shareholders’ equity.

220
Q

Return on total capital

A

A profitability ratio calculated as EBIT divided by the sum of short- and long-term debt and equity.

221
Q

Return-generating model

A

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
Q

Revaluation

A

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
Q

Revenue

A

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
Q

Reversal patterns

A

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
Q

Reverse stock split

A

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
Q

Revolving credit agreemtnts

A

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
Q

Rho

A

The sensitivity of the option price to the risk-free rate.

228
Q

Risk averse

A

The assumption that an investor will choose the least risky alternative.

229
Q

Risk aversion

A

The degree of an investor’s inability and unwillingness to take risk.

230
Q

Risk budgeting

A

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
Q

Risk governance

A

The setting of overall policies and standards in risk management.

232
Q

Risk management

A

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
Q

Risk premium

A

The expected return on an investment minus the risk-free rate.

234
Q

Risk tolerance

A

The amount of risk an investor is willing and able to bear to achieve an investment goal.

235
Q

Risk-neutral probabilities

A

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
Q

Risk-neutral valuation

A

The process by which options and other derivatives are priced by treating investors as though they were risk neutral.

237
Q

Robust

A

The quality of being relatively unaffected by a violation of assumptions.

238
Q

Robust standard errors

A

Standard errors of the estimated parameters of a regression that correct for the presence of heteroskedasticity in the regression’s error term.

239
Q

Root mean squarred error (RMSE)

A

The square root of the average squared forecast error; used to compare the out-of-sample forecasting performance of forecasting models.

240
Q

Roy’s safety first criterion

A

A criterion asserting tha the optimal portfolio is the one that minimizes the probability that portfolio return falls below a threshold level.

241
Q

Rule of 72

A

The principle that the approximate number of years necessary for an investment to double is 72 divided by the stated interest rate.

242
Q

Safety stock

A

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
Q

Safety-first rules

A

Rules for portfolio selection that focus on the risk that portfolio value will fall below some minimum acceptable level over some time horizon.

244
Q

Sales

A

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
Q

Sales returns and allowances

A

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
Q

Sales risk

A

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
Q

Sales-type lease

A

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
Q

Salvage value (or residual value)

A

The amount the company estimates that it can sell the asset for at the end of its useful life.

249
Q

Samle statistic or statistic

A

A quantity computed from or used to describe a sample.

250
Q

Sample

A

A subset of a population.

251
Q

Sample excess kurtosis

A

A sample measure of the degree of a distribution’s peakedness in excess of the normal distribution’s peakedness.

252
Q

Sample kurtosis

A

A sample measure of the degree of a distribution’s peakedness.

253
Q

Sample mean

A

The sum of the sample observations, divided by the sample size.

254
Q

Sample selection bias

A

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
Q

Sample skewness

A

A sample measure of degree of asymmetry of a distribution.

256
Q

Sample standard deviation

A

A positive square root of the sample variance.

257
Q

Sample variance

A

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
Q

Sampling

A

The process of obtaining a sample.

259
Q

Sampling distribution

A

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
Q

Sampling error

A

The difference between the observed value of a statistic and the quantity it is intended to estimate.

261
Q

Sampling plnan

A

The set of rules used to select a sample.

262
Q

Sandwich spread

A

An option strategy that is equivalent to a short bufferfly spread.

263
Q

Sarbanes-Oxley Act

A

An act passed by the U.S. Congress in 2002 that created the Public Company Accounting Oversight Board (PCAOB) to oversee auditors.

264
Q

Scalper

A

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
Q

Scatter plot

A

A two-dimensional plot of pairs of observations on two data series.

266
Q

Scenario analysis

A

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
Q

Screening

A

The application of a set of criteria to reduce a set of potential investments to a smaller set having certain desired characteristics.

268
Q

Search activity

A

The time spent looking for someone with whom to do business.

269
Q

Seasoned offering

A

An offering in which an issuer sells additional units of a previously issued security.

270
Q

Seats

A

Memberships in a derivatives exchange.

271
Q

Secondary market

A

The market where securities are traded among investors.

272
Q

Secondary precendence rules

A

Rules that determine how to rank orders placed at the same time.

273
Q

Sector

A

A group fo related industries.

274
Q

Sector indices

A

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
Q

Sector neutralizing

A

Measure of financial reporting quality by subtracting the mean or mediam ratio for a given sector group from a given company’s ratio.

276
Q

Securities Act of 1933

A

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
Q

Securities Exchange Act of 1934

A

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
Q

Securities offering

A

A merger or acquisition in which target shareholders are to receive shares of the acquirer’s common stock as compensation.

279
Q

Security characteristic line

A

A plot of the excess retrun of a security in excess return of the market.

280
Q

Security market index

A

A portfolio of securities representing a given security market, market segment, or asset class.

281
Q

Security market line (SML)

A

The graph of the capital asset pricing model.

282
Q

Security selection

A

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
Q

Segment debt ratio

A

Segment liabilities divided by segment assets.

284
Q

Segment margin

A

Segment profit (loss) divided by segment revenue.

285
Q

Segment ROA

A

Segment profit (loss) divided by segment assets.

286
Q

Segment turnover

A

Segment revenue divided by segment assets.

287
Q

Self-investment limits

A

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
Q

Sell side firm

A

A broker or dealer that sells securities to and provides independent investment research and recommendations to investment mangement companies.

289
Q

Semideviation

A

The positive square root of semivariance (sometimes called semistandard deviation).

290
Q

Semilogarithmic

A

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
Q

Semi-strong-form efficient market hypothesis

A

The belief that security prices reflect all publicly known and available information.

292
Q

Semivariance

A

The average equared deviation below the mean.

293
Q

Sensitivity analysis

A

Analysis that shows the range of possible outcomes as specific assumptions are changed.

294
Q

Separately managed account (SMA)

A

An investment portfolio managed exclusively for the benefit of an individual or institution.

295
Q

Serially correlated

A

With reference to regression errors, errors that are correlated across observations.

296
Q

Service period

A

The period benefited by the employee’s service, usually the period between the grant date and the vesting date.

297
Q

Settlement date or payment date

A

The date on which the parties to a swap make payments.

298
Q

Settlement period

A

The time between settlement dates.

299
Q

Settlement price

A

The official price, designated by the clearinghouse, from which daily gains and losses will be determined and marked to market.

300
Q

Settlement risk

A

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
Q

Share repurchase

A

A transaction in which a company buys back its own shares. Unlike stock dividends and stock splits, share repurchases use corporate cash.

302
Q

Shark repellents

A

A pre-offer takeover defense mechanism involving the corporate charter (e.g., staggered boards of directors and supermajority provisions).

303
Q

Sharpe ratio

A

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
Q

Shelf registration

A

A registration of an offering well in advance of the offering; the issuer may not sell all shares registered in a single transaction.

305
Q

Short

A

The seller of a derivative contract. Also refers to the position of being short a derivative.

306
Q

Short position

A

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
Q

Short run

A

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
Q

Short selling

A

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
Q

Shortfall risk

A

The risk that portfolio value will fall below some minimum acceptable level over some time horizon.

310
Q

Short-run aggregate supply

A

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
Q

Short-run industry supply curve

A

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
Q

Short-run macroeconomic equilibrium

A

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
Q

Short-run Phillips curve

A

A curve that shows the tradeoff btween inflation and unemployment, when the expected inflation rate and the natural unemployment rate remain the same.

314
Q

Shutdown point

A

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
Q

Signal

A

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
Q

Simple interest

A

The interest earned each period on the original investment; interest calculated on the pricipal only.

317
Q

Simple random sample

A

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
Q

Simple random sampling

A

The procedure of drawing a sample to satisfy the definition of a simple random sample.

319
Q

Simulation

A

Computer-generated sensitivity or scenario analysis that is based on probability models for the factors that drive outcomes.

320
Q

Simulation trial

A

A complete pass throug the steps of a simulation.

321
Q

Single-payment loan

A

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
Q

Single-price monopoly

A

A monopoly that must sell each unit of its output for the same price to all its customers.

323
Q

Single-step format

A

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
Q

Skewed

A

Not symmetrical.

325
Q

Skewness

A

The quantitative measure of skew (lack of symmetry); a synonym of skew.

326
Q

Sole proprietorship

A

A business owned and operated bya single person.

327
Q

Solvency

A

With respect to financial statement analysis, the ability of a company to fulfill its long-term obligations.

328
Q

Solvency ratios

A

Ratios that measure a company’s ability to meet its long-term obligations.

329
Q

Sovereign yield spread

A

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
Q

Spearmean rank correlation coefficient

A

A measure of correlation applied to ranked data.

331
Q

Special purpose entity (special purpose vehicle or variable interest entity)

A

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
Q

Specific identification method

A

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
Q

Spin-off

A

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
Q

Split-off

A

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
Q

Split-rate

A

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
Q

Sponsored depository receipt

A

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
Q

Spot markets

A

Markets that trade assets for immediate delivery.

338
Q

Spread

A

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
Q

Spurious correlation

A

A correlation that misleadingly points toward associations between variables.

340
Q

Stagflation

A

The combination of inflation and recession.

341
Q

Standard cost

A

With respect ot inventory accounting, the planned or target unit cost of inventory items or services.

342
Q

Standard deviation

A

The positive square root of the variance; a measure of dispersion in the same units as the original data.

343
Q

Standard normal distribution (or unit normal distribution)

A

The normal density with mean (?) equal to 0 and standard divaiton (?) equal to 1.

344
Q

Standardized beta

A

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
Q

Standardizing

A

A transformation that involves subtracting the mean and dividing the result by the standard deviation.

346
Q

Standing limit orders

A

A milit order at a price below market and which therefore is waiting to trade.

347
Q

Stated annual interest rate or quoted interest rate

A

A quoted interest rate that does not account for compounding within the year.

348
Q

Stated rate (nominal rate or coupon rate)

A

The rate at which periodic interest payments are calculated.

349
Q

Statement of cash flows (cash flow statement)

A

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
Q

Statement of changes in shareholders’ equity (statement of owners’ equity)

A

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
Q

Statement of retained earnings

A

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
Q

Static trade-off ehtory of capital structure

A

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
Q

Statistic

A

A quantity computed form or used to describe a sample of data.

354
Q

Statistic factor models

A

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
Q

Statistical inference

A

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
Q

Statistically significant

A

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
Q

Statistics

A

The science of describing, analyzing, and drawing conclusions from data; also, a collection of numberical data.

358
Q

Statutory merger

A

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
Q

Statutory voting

A

A common method of voting where each share represents one vote.

360
Q

Stock dividend (also bonus issue of shares)

A

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

361
Q

Stock grants

A

The granting of stock to employees as a form of compensation.

362
Q

Stock options (stock option grants)

A

The granting of stock options to employees as a form of compensation.

363
Q

Stock purchase

A

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
Q

Stock-out losses

A

Profits lost form not having sifficient inventory on hand to satisfy demand.

365
Q

Stop order (or stop-loss order)

A

An order in which a trader has specified a stop price condition.

366
Q

Storage costs or carrying costs

A

The costs of holding an asset, generally a function of the physical characteristics of the underlying asset.

367
Q

Straddle

A

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
Q

Straight-line method

A

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
Q

Strangle

A

A variation of a straddle in which the put and call have different exercise prices.

370
Q

Strap

A

An option strategy involving the purchase of two calls and one put.

371
Q

Strategic analysis

A

Analysis of the competitive environment with an emphasis on the implications of the environment for corporate strategy.

372
Q

Strategic asset allocation

A

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
Q

Strategic groups

A

Groups sharing distinct business models or catering to specific market segments in an industry.

374
Q

Strategies

A

All the possible actions of each player in a game.

375
Q

Stratified random sampling

A

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
Q

Stress testing

A

A set of techniques for estimating losses in extremely unfavorable combinations fo events or scenarios.

377
Q

Strip

A

An option strategy involving the purchase of two puts and one call.

378
Q

Strong-form efficient market hypothesis

A

The belief that security prices reflect all public and private information.

379
Q

Structural surplus or deficit

A

The budget balance that would occur if the economy were at full employment and real GDP were equal to potential GDP.

380
Q

Structural unemployemnt

A

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
Q

Structured note

A

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
Q

Subjective probability

A

A probability drawing on personal or subjective judgment.

383
Q

Subsidiary merger

A

A merger in which the company being purchased becomes a subsidiary of the purchaser.

384
Q

Subsidy

A

A payment made by the government to a producer.

385
Q

Sunk cost

A

A cost that has already been incurred.

386
Q

Supply-side effects

A

The effects of fiscal policy on employment, potential GDP, and aggregate supply.

387
Q

Support

A

In technical analysis, a price range in which bying activity is sufficient to stop the decline in the price of a seucrity.

388
Q

Support level

A

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
Q

Surprise

A

The actual value of a variable minus its predicted (or expected value).

390
Q

Survey approach

A

An estimate of the equity risk premium that is based upon estimates provided by a panel of finance experts.

391
Q

Survivorship bias

A

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
Q

Sustainable growth rate

A

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
Q

Swap (or swap contract)

A

An agreement between two parties to exchange a series of future cash flows.

394
Q

Swap spread

A

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
Q

Swaption

A

An option to enter into a swap.

396
Q

Symmetry principle

A

A requirement that people in similar situations be treated similarly.

397
Q

Synthetic call

A

The combination of puts, the underlying, and risk-free bonds that replicates a call option.

398
Q

Synthetic forward contract

A

The combinations of the underlying, puts, calls, and risk-free bonds that replicates a forward contract.

399
Q

Synthetic index fund

A

An index fund position created by combining risk-free bonds and futures on the desired index.

400
Q

Synthetic put

A

The combination of calls, the underlying, and risk-free bonds that replicate a put option.

401
Q

Systematic factors

A

Factors that affect the average returns of a large number of different assets.

402
Q

Systematic risk

A

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
Q

Systematic sampling

A

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
Q

Tactical asset allocation

A

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
Q

Takeover

A

A merger; the term may be applied to any transaction, but is often used in reference to hostile transactions.

406
Q

Takeover premium

A

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
Q

Tangible assets

A

Long-term assets with physical substance that are used in company operations, such as land (property), plant, and equipment.

408
Q

Target balance

A

A minimum level of cash to be held available–estimated in advance and adjusted for known funds transfers, seasonality, or other factors.

409
Q

Target capital structure

A

A company’s chosen proportions of debt and euqity.

410
Q

Target company or target

A

The company in a merger or acquisision that is being acquired.

411
Q

Target payout ratio

A

A strategic corporate goal representing long-term proportion of earnings that the company intends to distribute to shareholders as dividends.

412
Q

Target semideviation

A

The positive square root of target semivariance.

413
Q

Target semivariance

A

The average squared deviation below a target value.

414
Q

Targeting rule

A

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
Q

Tax base (tax basis)

A

The amount at which an asset or liability is valued for tax puposes.

416
Q

Tax expense

A

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
Q

Tax incidence

A

The division of the burden of the tax between the buyer and the seller.

418
Q

Tax loss carry forward

A

A taxable loss in the current period that may be used to reduce future taxable income.

419
Q

Tax risk

A

The uncertainty associated with tax laws.

420
Q

Tax wedge

A

The gap between the before-tax and after-tax wage rates.

421
Q

Taxable income

A

The portion of an entity’s income that is subject to income taxes under the tax laws of its jurisdiction.

422
Q

Taylor rule

A

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
Q

t-Distribution

A

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
Q

Technical analysis

A

A form of security analysis that uses price and volume data, which is often displayed graphically, in decision making.

425
Q

Technological efficiency

A

A situation that occurs when the firm produces a given output by using the least amount of inputs.

426
Q

Technology

A

Any method of producing a good or service.

427
Q

Temporal method

A

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
Q

Tender offer

A

A public offer whereby the acquirer invites target shareholders to submit (“tender”) their shares in return for the proposed payment.

429
Q

Tenor

A

The original time to maturity on a swap.

430
Q

Terminal stock value (or terminal value)

A

The expected value of a share at the end of the investent horizon–in effect, the expected selling price.

431
Q

Termination date

A

The date of the final payment on a swap; also, the swap’s expiration date.

432
Q

Test statistic

A

A quantity, calculated based on a sample, whose value is the basis for deciding whether or not to reject the null hypothesis.

433
Q

Theta

A

The rate at which an option’s time value decays.

434
Q

Time series

A

A set of observations on a variable’s outcomes in different time periods.

435
Q

Time to expiration

A

The time remaining in the life of a derivative, typically expressed in years.

436
Q

Time value decay

A

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
Q

Time value of money

A

The principles governing equivalence relationships between cash flows with different dates.

438
Q

Time value or speculative value

A

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
Q

Time-period bias

A

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
Q

Time-series data

A

Observations of a variable over time.

441
Q

Time-weighted rate of return

A

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
Q

Top-down analysis

A

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
Q

Total asset turnover

A

An activity ratio calculated as revenue divided by average total assets.

444
Q

Total cost

A

The cost of all the productive resources that a firm uses.

445
Q

Total fixed cost

A

The cost of the firm’s fixed inputs.

446
Q

Total invested capital

A

The sum of market value of common equity, book value of preferred equity, and face value of debt.

447
Q

Total probability rule

A

A rule explaining the unconditional probability of an event in terms of probabilities of the event conditional on mutually exclusive and exhaustive scenarios.

448
Q

Total probability rule for expected value

A

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
Q

Total product

A

The total output produced by a firm in a given period of time.

450
Q

Total return

A

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
Q

Total return index

A

An index that reflects the price appreciation or percentage change in price of the constituent seucurities plus any income received since inception.

452
Q

Total return swap

A

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
Q

Total revenue

A

The value of a firm’s sales. It is calculated as the price of the good multiplied by the quantity sold.

454
Q

Total revenue test

A

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
Q

Total variable cost

A

The cost of all the firm’s variable inputs.

456
Q

Tracking error

A

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
Q

Tracking portfolio

A

A portfolio having factor sensitivities that are matched to those of a benchmark or other portfolio.

458
Q

Tracking risk (tracking error)

A

The standard deviation of the differences between a portfolio’s returns and its benchmarks returns; a synonym of active risk.

459
Q

Trade credit

A

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
Q

Trade receivables (commercial receivables or accounts receivable)

A

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
Q

Trading securties (held-for-trading securities)

A

Securities held by a company with the intent to trade them.

462
Q

Traditional investment markets

A

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
Q

Transaction exposure

A

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
Q

Transactions motive

A

In the context of inventory mangement, the need for inventory as part of the routine product-sales cyle.

465
Q

Translation exposure

A

The risk associated with the conversion of foreign financial statements into domestic currency.

466
Q

Treasury shares

A

Shares that were issued and subsequiently repurchased by the company.

467
Q

Treasury stock method

A

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
Q

Tree diagram

A

A diagram with branches emanating from nodes representing either mutually exclusive chance events or mutually exclusive decisions.

469
Q

Trend

A

A long-term pattern of movement in a particular direction.

470
Q

Treynor ratio

A

A measure of risk-adjusted performance that relates a portfolio’s excess returns to the portfolio’s beta.

471
Q

Triangle patterns

A

In technical analysis, a continuation chart pattern that forms as the range between high and low prices narrows, visually forming a triangle.

472
Q

Trimmed mean

A

A mean computed after excluding a stated small percentage of the lowest and highest observations.

473
Q

Triple bottoms

A

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
Q

Triple tops

A

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
Q

Trust receipt arrangement

A

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
Q

t-Test

A

A hypothesis test using a statistic (t-statistic) that follows a t-distribution.

477
Q

Two-fund separation theorem

A

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
Q

Two-sided hypothesis test (or two-tailed hypothesis test)

A

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
Q

Type I error

A

The error of rejecting a true null hypothesis.

480
Q

Type II error

A

The error of not rejecting a false null hypothesis.

481
Q

Unbiasedness

A

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
Q

Unbilled revenue (accrued revenue)

A

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

483
Q

Unclassified balance sheet

A

A balance sheet that does not show subtotals for current assets and current liablitlies.

484
Q

Unconditional heterskedasticity

A

Heteroskedasticity of the error term that is not correlated with the values of the independent variables(s) in the regression.

485
Q

Unconditional porobability (or marginal probability)

A

The probability of an event not conditioned on another eevent.

486
Q

Underlying

A

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
Q

Underwritten offering

A

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
Q

Unearned fees

A

Unearned fees are recognized when a company receives cash payment for fees prior to earning them.

489
Q

Unearned revenue (deferred revenue)

A

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
Q

Unemployment rate

A

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
Q

Unidentifiable intangible

A

An intangible that cannot be acquired singly and that typically possesses an indefinite benefit period; an example is accounting goodwill.

492
Q

Unit elastic demand

A

Demand with a price elasticity of 1; the percentage change in the quantity demanded equals the percentage change in price.

493
Q

Unit root

A

A time series that is not covariance stationary is said to have a unit root.

494
Q

Uniting of interests method

A

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
Q

Units-of-production method

A

A depreciation method that allocates the cost of a long-loved asset based on actual usage during the period.

496
Q

Univariate distribution

A

A distribution that specifies the probabilities for a single random variable.

497
Q

Unlimited funds

A

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
Q

Unsponsored depository receipt

A

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
Q

Up transition probability

A

The probability that an asset’s value moves up.

500
Q

Upstream

A

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.