CFA Level I Flashcards

Vocabulary flashcards covering core concepts, financial metrics, and definitions for CFA Level I.

Impairment loss

Write-down when carrying value exceeds recoverable amount; $\$100\text{k}$ to \60\text{k} = \$40\text{k}$ loss.

Short-run shutdown rule

Perfect competition: operate if $\text{price} \ge \text{AVC}$; shut down if $\text{price} < \text{AVC}$.

ROIC

$\text{NOPAT} / \text{invested capital}$; \20\text{k} / \$100\text{k} = 20\%$.

Effective tax rate

$\text{Income tax expense} / \text{pretax income}$; \20\text{k} / \$100\text{k} = 20\%$.

Harmonic mean

$n / \sum(1/x)$; equal-dollar average purchase price = total invested / shares acquired.

SPAC

Blank-check IPO company that merges with/acquires a private business.

Parametric tests

Assume specified distribution or parameters; often normality.

Nonparametric tests

Fewer distribution assumptions; often rank-based.

World Bank

Primary goal: reduce poverty and support development.

Fiat money

Currency not redeemable for gold/commodity; relies on confidence and state authority.

Legal tender

Money legally valid for settling monetary debts.

Promissory note

Written promise to pay an amount now or at a future date.

Sampling error

Sample estimate minus true population value; $52$ vs $50 = 2$.

Fair value

Orderly market-participant exit price on measurement date; IFRS disclosures depend on standard.

Rebate fulfillment

Verify eligible purchase and deliver promised refund.

Homoskedasticity

Constant error variance across observations.

Heteroskedasticity

Error variance changes across observations.

Ricardian model

Trade based on comparative advantage from productivity differences.

Heckscher-Ohlin

Countries export goods intensive in their abundant production factors.

Intra-industry trade

Import and export goods within same industry; variety and scale.

Coefficient of variation

$\text{Standard deviation} / \text{mean}$; lower is better risk per return if $\text{mean} > 0$.

Doubtful accounts

Receivables expected not to be collected; allowance estimates credit losses.

Straight-line depreciation

$(\text{Cost} - \text{residual value}) / \text{useful life}$; (\10\text{k} - \$1\text{k}) / 3 = \$3\text{k}/\text{year}$.

Asymmetric information

One party has more relevant information than another.

Free cash flow hypothesis

Managers may waste surplus cash; debt discipline may reduce agency costs.

Pecking order theory

Prefer internal funds, then debt, then new equity.

Tax policy conflict

Simplicity and revenue sufficiency can conflict.

Fixed-charge coverage

Common version: $(\text{EBIT} + \text{lease payments}) / (\text{interest} + \text{lease payments})$; definitions vary.

Negative skew

Longer left tail; more extreme downside observations.

Leptokurtic

Fatter tails/more extreme outcomes than normal.

Mesokurtic

Normal-like kurtosis: $3$; excess kurtosis $0$.

Platykurtic

A distribution lowest

Kurtosis

Measure of tail heaviness/extreme observations.

IFRS inventory reversal

Reverse prior write-down when justified; reduces COGS (if expense classified there).

Disintermediation

Producer bypasses wholesalers/retailers to sell directly.

Simple capital structure

No potentially dilutive securities.

Complex capital structure

Has options, warrants, convertibles or other potential dilution.

Autarky

National self-sufficiency; minimal international trade.

Bilateralism

Cooperation/agreement between two countries.

Hegemony

Dominant country shapes international affairs.

Multilateralism

Several countries cooperate under shared rules.

Nationalism

Prioritizes national interests and sovereignty.

Globalization

Increasing cross-border economic and social integration.

Cooperation

Countries coordinate toward shared aims.

Non-cooperation

Countries act independently without coordination.

Subsidy

Government financial support to encourage an activity; an expenditure.

Contango

Futures/forward price above current spot price.

Convenience yield

Noncash benefit of holding physical commodity inventory.

On-the-run Treasury

Most recently issued benchmark maturity; generally more liquid, lower yield.

Off-the-run Treasury

Older issue; generally less liquid, higher yield.

Closed-end real estate fund

Fixed commitment period; no ordinary on-demand redemption.

Core-plus real estate

Mostly stabilized assets with moderate value-add opportunities.

European option time decay

All else equal, time value generally declines as expiration nears; not every option price must fall.

Conservatism bias

Underreact to new information; cling to old forecasts.

Narrow framing

Assess decisions in isolation instead of overall context.

Representativeness bias

Rely on stereotypes/patterns; neglect base rates.

Make-whole call

Early bond redemption at PV of remaining payments, often Treasury rate + spread.

Catch-up clause

Manager gets accelerated profits after preferred return to reach agreed split.

Clawback provision

Manager returns excess incentive compensation after later losses/true-up.

High-water mark

Performance fees only after exceeding prior peak NAV.

Trade sale

Exit by selling portfolio company to strategic buyer.

Call market

Orders accumulated and matched periodically at one clearing price.

Brokered market

Broker searches for counterparties and arranges trade.

Value at Risk (VaR)

Loss threshold exceeded with specified probability over stated horizon.

Float-adjusted index

Weights use publicly tradable shares, excluding restricted holdings.

Value-weighted index

Weights proportional to market capitalization.

Stablecoin

Cryptoasset designed to maintain peg; may be backed by cash, securities, crypto or algorithms.

Unitholder structure

Investors own proportional units in a fund or trust.

Direct real estate

Own underlying property yourself.

Indirect real estate

Own REIT/fund units or shares holding property.

Direct lending

Nonbank lenders provide loans directly to borrowers.

Mezzanine financing

Subordinate to senior debt, senior to common equity; often equity upside.

Availability bias

Overweight easily recalled or recent examples.

Self-control bias

Favor immediate rewards over long-term goals.

Overconfidence bias

Overestimate skill, knowledge, or forecast accuracy.