CFA Level 1 Terms Exam 234 Questions with Answers 2023,100% CORRECT

CFA Level 1 Terms Exam 234 Questions with Answers 2023 Standard 1A: Knowledge of the Law - CORRECT ANSWER Members and Candidates must understand and comply with all applicable laws, rules, and regulations (includi ...

CFA Level 1 Terms Exam 234 Questions with Answers 2023 Standard 1A: Knowledge of the Law - CORRECT ANSWER Members and Candidates must understand and comply with all applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and Standards of Professional Conduct) of any government, regulatory organization, licensing agency, or professional association governing professional activities. In the event of a conflict, Members and Candidates must comply with the more strict law, rule, or regulation. Members and Candidates must not knowingly participate or assist in and must disclose from any violation of such laws, rules, or regulations applicable law - CORRECT ANSWER law that governs the member's or candidate's conduct "more strict" law - CORRECT ANSWER the law or regulation that imposes greater restrictions on the action of the member or candidate or calls for the member or candidate to exert a greater degree of action that protects the interests of investors Standard 1B: Independence and Objectivity - CORRECT ANSWER Members and Candidates must use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities. Members and Candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another's independence and objectivity Standard 1C: Misrepresentation - CORRECT ANSWER Members and Candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities Standard 1D: Misconduct - CORRECT ANSWER Members and Candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence Standard 2A: Material Nonpublic Information - CORRECT ANSWER Members and Candidates who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information material information - CORRECT ANSWER information that, if disclosed, would probably have an impact on the price of the security, or information that reasonable investors would want to know before making an investment decision Mosaic Theory - CORRECT ANSWER financial analysts are free to act on the collection, or mosaic, of public and material nonpublic information without risking violation Standard 2B: Market Manipulation - CORRECT ANSWER Members and Candidates must not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants information-based manipulation - CORRECT ANSWER includes, but is not limited to, spreading false rumors to induce trading by others Standard 3 - CORRECT ANSWER Duties to Client Standard 1 - CORRECT ANSWER Professionalism Standard 2 - CORRECT ANSWER Integrity of Capital Markets Standard 3A: Loyalty, Prudence, and Care - CORRECT ANSWER Members and Candidates have a duty of loyalty to their clients and must act with reasonable care exercise prudent judgment. Standard 3B: Fair Dealing - CORRECT ANSWER Members and Candidates must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities Standard 3C: Suitability - CORRECT ANSWER 1. When Members and Candidates are in an advisory relationship, they must: a. Make a reasonable inquiry into a client's or prospective client's investment experience, risk and return objectives, and financial constraints prior to making any investment recommendation or taking investment action and must reassess and update this information regularly. b. Determine that an investment is suitable to the client's financial situation and consistent with the client's written objectives, mandates, and constraints before making an investment recommendation or taking investment action. c. Judge the suitability of investments in the context of the client's total portfolio. 2. When Members and Candidates are responsible for managing a portfolio to a specific mandate, strategy, or style, they must make only investment recommendations or take only investment actions that are consistent with the stated objectives and constraints of the portfolio. investment policy statement (IPS) - CORRECT ANSWER written report that addresses the client's risk tolerance, return requirements, financial circumstances, and personal data (such as age and occupation) that are relevant to investment decisions, attitudes towards risk, and objectives in investing client identification (for IPS) - CORRECT ANSWER 1. type and nature of client 2. the existence of separate beneficiaries 3. approximate portion of total client assets that the member or candidate is managing investor objectives (for IPS) - CORRECT ANSWER 1. return objectives (income, growth in principal, maintenance of purchase power) 2. risk tolerance (suitability, stability of values) investor constraints (for IPS) - CORRECT ANSWER 1. liquidity needs 2. expected cash flows (patterns of additions and/or withdrawals) 3. investable funds (assets and liabilities or other commitments) 4. time horizon 5. tax considerations 6. regulatory and legal considerations 7. investor preferences, prohibitions, circumstances, and unique needs 8. proxy voting responsibilities Standard 3D: Performance Presentation - CORRECT ANSWER When communicating investment performance information, Members and Candidates must make reasonable efforts to ensure that it is fair, accurate, and complete Standard 3E: Preservation of Confidendiality - CORRECT ANSWER Members and Candidates must keep information about current, former, and prospective clients confidential unless: 1. The information concerns illegal activities on the part of the client 2. Disclosure is required by law 3. The client or prospective client permits disclosure of the information Standard 4 - CORRECT ANSWER Duties to Employers Standard 4A: Loyalty - CORRECT ANSWER In matters related to their employment, Members and Candidates must act for the benefit of their employer and not deprive their employer of the advantage of their skills and abilities, divulge confidential information, or otherwise cause harm to their employer Standard 4B: Additional Compensation Arrangements - CORRECT ANSWER Members and Candidates must not accept gifts, benefits, compensation, or consideration that competes with or might reasonably be expected to create a conflict of interest with their employer's interest unless they obtain written consent for all parties involved Standard 4C: Responsibilities of Supervisors - CORRECT ANSWER Members and Candidates must make reasonable efforts to ensure that anyone subject to their supervision or authority complies with applicable laws, rules, regulations, and the Code and Standards Standard 5 - CORRECT ANSWER Investment Analysis, Recommendations, and Actions Standard 5A: Diligence and Reasonable Basis - CORRECT ANSWER Members and Candidates must: 1. Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions. 2. Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or analysis. secondary research - CORRECT ANSWER research conducted by someone else in the member's or candidate's firm third-party research - CORRECT ANSWER research conducted by entities outside the member's or candidate's firm, such as a brokerage firm, bank, or research firm liquidity - CORRECT ANSWER ability to liquidate an investment on a timely basis at a reasonable cost capacity - CORRECT ANSWER investment amount beyond which returns will be negatively affected by new investments Standard 5B: Communication with Clients and Prospective Clients - CORRECT ANSWER Members and Candidates must: 1. Disclose to clients and prospective clients the basic format and general principles of the investment processes they use to analyze investments, select securities, and construct portfolios and must promptly disclose any changes that might materially affect those processes. 2. Disclose to clients and prospective clients significant limitations and risks associated with the investment process. 3. Use reasonable judgment in identifying which factors are important to their investment analyses, recommendations, or actions and include those factors in communications with clients and prospective clients. 4. Distinguish between fact and opinion in the presentation of investment analyses and recommendations Standard 5C: Record Retention - CORRECT ANSWER Members and Candidates must develop and maintain appropriate records to support their investment analyses, recommendations, actions, and other investment-related communications with clients and prospective clients Standard 6 - CORRECT ANSWER Conflicts of Interest Standard 6A: Disclosure of Conflicts - CORRECT ANSWER Members and Candidates must make fair and full disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with respective duties to their clients, prospective clients, and employer. Members and Candidates must ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant language effectively. Standard 6B: Priority of Transactions - CORRECT ANSWER Investment transactions for clients and employers must have priority over investment transactions in which a Member or Candidate is the beneficial owner. Standard 6C: Referral Fees - CORRECT ANSWER Members and Candidates must disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received from or paid to others for the recommendation of products or services. representative accounts - CORRECT ANSWER selecting a top-performing portfolio to represent the firm's overall investment results for a specific mandate survivorship bias - CORRECT ANSWER presenting an "average" performance history that excludes portfolios whose poor performance was weak enough to result in termination of the firm varying time periods - CORRECT ANSWER presenting performance for a selected time period which the mandate produced excellent returns or out-performed its benchmark - making comparison with other firms' results difficult or impossible accrual accounting - CORRECT ANSWER the recording of financial transactions as they come into existence rather than when they are paid or settled additional information - CORRECT ANSWER information that is required or recommended under the GIPS standards and is not considered supplemental information administrative fee - CORRECT ANSWER all fees other than trading expenses and the investment management fee; includes custody fees, accounting fees, auditing fees, consulting fees, legal fees, performance measurement fees, and other related fees all-in fee - CORRECT ANSWER a type of bundled fee that includes any combination of investment management fees, trading expenses, custody fees, and administrative fees; is client specific and typically offered in certain jurisdictions where asset management, brokerage, and custody services are offered by the same company benchmark - CORRECT ANSWER a point of reference against which the composite's performance and/or risk is compared benchmark description - CORRECT ANSWER general information regarding the investments, structure, and/or characteristics of the benchmark; the description must include the key features of the benchmark or the name of the benchmark for a readily recognized index or other point of reference bundled fee - CORRECT ANSWER a fee that combines multiple fees into one total or "bundled" fee; can include any combination of investment management fees, trading expenses, custody fees, and/or administrative fees (e.g. wrap fees, all-in fees) capital employed (real estate) - CORRECT ANSWER the denominator of the return calculations and defined as the "weighted-average equity" (weighted average capital) during the measurement period; does not include any income return or capital return earned during the measurement period; beginning capital is adjusted by weighting the external cash flows that occurred during the period capital return (real estate) - CORRECT ANSWER the change in value of the real estate investments and cash and/or cash equivalent assets held throughout the measurement period, adjusted for all capital expenditures (subtracted) and net proceeds from sales (added); computed as a percentage of capital employed real risk-free interest rate - CORRECT ANSWER the single-period interest rate for a completely risk-free security if no inflation were expected; in economic theory, the real risk-free interest rate reflects the time preferences of individuals for current versus future real consumption inflation premium - CORRECT ANSWER compensates investors for expected inflation and reflects the average inflation rate expected over the maturity of debt nominal risk-free interest rate - CORRECT ANSWER the sum of the real risk-free interest rate and the inflation premium default risk premium - CORRECT ANSWER compensates investors for the possibility that the borrower will fail to make a promised payment at the contracted time in the contracted amount liquidity premium - CORRECT ANSWER compensates investors for the risk of loss relative to an investment's fair value if the investments need to be converted into cash quickly maturity premium - CORRECT ANSWER compensates investors for the increased sensitivity of the market value of debt to a change in market interest rates as maturity is extended, in general (holding all else equal) stated annual interest rate (quoted interest rate) - CORRECT ANSWER interest rate that is quoted by financial institutions (e.g. monthly interest rate multiplied by 12) annuity - CORRECT ANSWER finite set of level sequential cash flows ordinary annuity - CORRECT ANSWER annuity that has a first cash flow that occurs one period from now annuity due - CORRECT ANSWER annuity that has a first cash flow that occurs immeditely perpetuity - CORRECT ANSWER perpetual annuity, or a set of level never-ending sequential cash flows, with the first cash flow occurring one period from now demand and supply analysis - CORRECT ANSWER the study of how buyers and sellers interact to determine transaction prices and quantities consumption - CORRECT ANSWER the demand for goods and services theory of the consumer - CORRECT ANSWER deals with consumption (the demand of goods and services) by utility-maximizing individuals (i.e. individuals who make decisions that maximize the satisfaction received from present and future consumption) theory of the firm - CORRECT ANSWER deals with the supply of goods and services by profit-maximizing firms factor markets - CORRECT ANSWER markets for the purchase and sale of factors of production goods markets - CORRECT ANSWER markets for the outputs of production intermediate goods and services - CORRECT ANSWER goods and services purchased as inputs to produce other goods and services labor market - CORRECT ANSWER type of factor market; households offer to sell their labor services when the payment they expect to receive exceeds the value of the leisure time they must forgo saving - CORRECT ANSWER households choosing to spend less on consumption than they earn on labor; allows households to accumulate financial capital, the returns on which can produce other sources of household income, such as interest, dividends, and capital gains capital markets - CORRECT ANSWER markets for long-term financial capital - that is, markets for long-term claims on firms' assets and cash flows; used by firms to sell debt (in bond markets) or equity (in equity markets) in order to raise funds to invest in productive assets, such as plant and equipment demand - CORRECT ANSWER the willingness and ability of consumers to purchase a given amount of a good or service at a given price supply - CORRECT ANSWER the willingness of sellers to offer a given amount of a good or service at a given price law of demand - CORRECT ANSWER general economic belief that as prices rise, people will buy less of a given good, and as prices fall, people will buy more of that good own-price - CORRECT ANSWER used by economists to underscore that the reference is to the price of a good itself and not to the price of some other good capital budgeting - CORRECT ANSWER the allocation of funds to relatively long-range projects or investments capital structure - CORRECT ANSWER the choice of long-term financing for the investments the company wants to make working capital management - CORRECT ANSWER the management of the company's short-term assets (such as inventory) and short-term liabilities (such as money owed to suppliers) net present value - CORRECT ANSWER the present value of its cash inflows minus the present value of its cash outflows internal rate of return - CORRECT ANSWER the discount rate that makes the net present value equal to zero IRR rule - CORRECT ANSWER accept projects or investments when the IRR is greater than the opportunity cost of capital hurdle rate - CORRECT ANSWER the rate that a project's IRR must exceed for the project to be accepted performance measurement - CORRECT ANSWER involves calculating returns in a logical and consistent manner performance appraisal - CORRECT ANSWER accurate performance management holding period return (HPR) - CORRECT ANSWER the return that an investor earns over a specified holding period money-weighted rate of return - CORRECT ANSWER internal rate of return for investment management applications, accounts for the timing and the amount of all cash flows into and out of the portfolio time-weighted rate of return - CORRECT ANSWER measures the compound rate of growth of $1 initially invested in the portfolio over a stated measurement period money market - CORRECT ANSWER market for short term debt instruments (one-year maturity or less) pure discount interest - CORRECT ANSWER pay interest as the difference between the amount borrowed and the amount paid back bank discount basis - CORRECT ANSWER how T-bills are quoted; annualizes, based on a 360 day year, the discount as a percentage of face value effective annual yield (EAY) - CORRECT ANSWER takes the quantity 1 plus the holding period yield (HPY) and compounds it forward one year, then subtracts one to recover an annualized return that accounts for the effect of interest-on-interest money market yield - CORRECT ANSWER makes the quoted yield on a T-bill comparable to yield quotations on interest-bearing money-market instruments that pay interest on a 360-day basis bond equivalent yield - CORRECT ANSWER an approach used in US bond markets for quoting bond yields, quotes by doubling the semi-annual YTM descriptive statistics - CORRECT ANSWER the study of how data can be summarized effectively to describe the important aspects of large data sets statistical inference - CORRECT ANSWER involves making forecasts, estimates, or judgments about a larger group from the smaller group actually observed population - CORRECT ANSWER all members of a specified group parameter - CORRECT ANSWER any descriptive measure of a population characteristic sample - CORRECT ANSWER a subset of the population sample statistic - CORRECT ANSWER a quantity computed from or used to describe a sample measurement scales - CORRECT ANSWER a scheme of measuring differences; four major types: nominal, ordinal, interval, and ratio nominal scale - CORRECT ANSWER a measurement scale that categorizes data but does not rank them ordinal scale - CORRECT ANSWER a measurement scale that sorts data into categories that are ordered (ranked) with respect to some characteristic interval scale - CORRECT ANSWER a measurement scale that not only ranks data but also gives assurance that the difference between scale values are equal ratio scale - CORRECT ANSWER a measurement scale that has all of the characteristics of interval measurement scales as well as a true zero point as the origin frequency distribution - CORRECT ANSWER a tabular display of data summarized into a relatively small number of intervals interval - CORRECT ANSWER a set of values within which an observation falls absolute frequency - CORRECT ANSWER the number of observations in a given interval (for given data) relative frequency - CORRECT ANSWER with reference to an interval of group data, the number of observations in the interval divided by the total number of observations in the sample cumulative relative frequency - CORRECT ANSWER for data grouped into intervals, the fraction of total observations that are less than the upper limit of a stated interval histogram - CORRECT ANSWER a bar chart of data that have been grouped into a frequency distribution frequency polygon - CORRECT ANSWER a graph of a frequency distribution obtained by drawing straight lines joining successive points representing class frequencies measure of central tendency - CORRECT ANSWER a quantitative measure that specifies where data are centered measures of location - CORRECT ANSWER a quantitative measure that describes the location or distribution;includes not only measures of central tendency but also other measures such as percentiles arithmetic mean - CORRECT ANSWER the sum of the observations divided by the number of observations population mean - CORRECT ANSWER the arithmetic mean value of a population; the arithmetic mean of all the observations or values in the population sample mean - CORRECT ANSWER the sum of the sample observations, divided by the sample size cross-sectional data - CORRECT ANSWER observations over individual units at a point in time, as opposed to time series data time-series data - CORRECT ANSWER observations of a variable over time weighted mean - CORRECT ANSWER an average in which each observation is weighted by an index of its relative importance geometric mean - CORRECT ANSWER a measure of central tendency computed by taking the nth root of the product of n non-negative values harmonic mean - CORRECT ANSWER a type of weighted mean computed by averaging the reciprocals of the observations, then taking the reciprocal of that average cost averaging - CORRECT ANSWER the periodic investment of a fixed amount of money dispersion - CORRECT ANSWER the variability around the central tendency absolute dispersion - CORRECT ANSWER the amount of variability present without comparison to any reference point or benchmark mean absolute deviation - CORRECT ANSWER with reference to a sample, the mean of the absolute values of deviations from the sample mean variance - CORRECT ANSWER the expected value (the probability-weighted average) of squared deviations from a random variable's expected value standard deviation - CORRECT ANSWER the positive square root of the variance; a measure of dispersion in the same units as the original data population variance - CORRECT ANSWER a measure of dispersion relating to a population, calculated as the mean of the standard deviations around the population mean population standard deviation - CORRECT ANSWER 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 sample variance - CORRECT ANSWER a sample measure of the degree of dispersion of a distribution, calculated by dividing the sum of the squared deviations from the sample size minus 1 sample standard deviation - CORRECT ANSWER the positive square root of the sample variance semivariance - CORRECT ANSWER the average squared deviation below the mean semideviation - CORRECT ANSWER the positive square root of semivariance (sometimes called semistandard deviation) target semivariance - CORRECT ANSWER the average squared deviation below a target value target semideviation - CORRECT ANSWER the positive square root of target semivariance Chebyshev's Inequality - CORRECT ANSWER for any distribution with finite variance, the proportion of observations within k standard deviations of the arithmetic mean is at least 1-1/k^2 for all k>1 relative dispersion - CORRECT ANSWER the amount of dispersion relative to a reference value or benchmark coefficient of variation - CORRECT ANSWER the ratio of a set of observations' standard deviation to the observations' mean value Sharpe ratio - CORRECT ANSWER the average return in excess of the risk-free rate divided by the standard deviation of a return; a measure of the average excess return earned per unit of standard deviation of return mean excess return - CORRECT ANSWER the average rate of return in excess of the risk-free rate skewed - CORRECT ANSWER not symmetrical skewness - CORRECT ANSWER a quantitative measure of skew (lack of symmetry); a symptom of skew sample skewness - CORRECT ANSWER a sample measure of degree of asymmetry of a distribution kurtosis - CORRECT ANSWER the statistical measure that indicates the peakedness of a distribution lepokurtic - CORRECT ANSWER describes a distribution that is more peaked than a normal distribution platykurtic - CORRECT ANSWER describes a distribution that is less peaked than a normal distribution mesokurtic - CORRECT ANSWER describes a distribution with kurtosis identical to that of the normal distribution excess kurtosis - CORRECT ANSWER degree of peakedness (fatness of tails) in excess of the peakedness sample excess kurtosis - CORRECT ANSWER a sample measure of the degree of a distribution's peakedness in excess of the normal distribution's peakedness sample kurtosis - CORRECT ANSWER a sample measures of the degree of a distribution's peakedness random variable - CORRECT ANSWER a quantity whose future outcomes are uncertain outcome - CORRECT ANSWER a possible value of a random variable event - CORRECT ANSWER any outcome or specified sets of outcomes of a random variable probability - CORRECT ANSWER a number between 0 and 1 describing the chance that a stated event may occur exhaustive - CORRECT ANSWER covering or containing all possible outcomes empirical probability - CORRECT ANSWER the probability of an event estimated as a relative frequency of occurence subjective probability - CORRECT ANSWER a probability drawing on personal or subjective judgment a priori probability - CORRECT ANSWER a probability based on logical analysis rather than on observation or personal judgment objective probabilities - CORRECT ANSWER probabilities that generally do not vary from person to person; includes a priori and objective probabilities pairs arbitrage trade - CORRECT ANSWER a trade in two closely related stocks involving the short sale of one and the purchase of the other unconditional probability - CORRECT ANSWER the probability of an event not conditioned on another event; also known as marginal probability conditional probability - CORRECT ANSWER the probability of an event given (conditioned on) another event joint probability - CORRECT ANSWER the probability of the joint occurrence of stated events consistent - CORRECT ANSWER with reference to estimators, describes an estimator for which the probability of estimates close to the value Dutch Book theorem - CORRECT ANSWER a result in probability theory stating that inconsistent probabilities create profit opportunities conditional expected value - CORRECT ANSWER the expected value of a stated event given that another event has occured correlation - CORRECT ANSWER a number between -1 and +1 that measures the comovement (linear association) between two random variables likelihoood - CORRECT ANSWER the probability of an observation, given a particular set of conditions posterior probability - CORRECT ANSWER an updated probability that reflects or comes after new information prior probability - CORRECT ANSWER probabilities reflecting beliefs prior to the arrival of new information combination - CORRECT ANSWER a listing in which the order of listed items does not matter permutation - CORRECT ANSWER an ordered listing discrete random variable - CORRECT ANSWER a random variable that can take on at most a countable number of possible values continuous random variable - CORRECT ANSWER a random variable for which the range of possible outcomes is the real line (all real numbers between negative infinity and infinity) probablility function - CORRECT ANSWER a function that specifies the probability that the random value takes on a specific value probability density function - CORRECT ANSWER a function with non-negative values such that probability can be described by areas under the curve graphing formula cumulative distribution function - CORRECT ANSWER a function giving the probability that a random value is less than or equal to a specified value Bernoulli random variable - CORRECT ANSWER a random variable having the outcomes 0 and 1 Bernoulli trial - CORRECT ANSWER an experiment that can produce one of two outcomes binomial random variable - CORRECT ANSWER the number of successes in n Bernoulli trials for which the probability of success for all trials and the trials are independent tracking error - CORRECT ANSWER the standard deviation of the differences between a portfolio's returns and its benchmark's returns; a symptom of active risk up transition probability - CORRECT ANSWER the probability that an asset's value moves up down transition probability - CORRECT ANSWER the probability that an asset's value moves down in a model of asset price dynamics univariate distribution - CORRECT ANSWER a distribution that specifies the probabilities for a single random variable multivariate distribution - CORRECT ANSWER a probability distribution that specifies the probabilities for a group of related random variables multivariate normal distribution - CORRECT ANSWER a probability distribution for a group of random variables that is completely defined by the means and variances of the variables plus all the correlations between pairs of the variables standard normal distribution - CORRECT ANSWER the normal density with mean equal to 0 and standard deviation equal to 1 standardizing - CORRECT ANSWER a transformation that involves subtracting the mean and dividing the result by the standard deviation safety-first rules - CORRECT ANSWER rules for portfolio selection that focus on the risk that portfolio value will fall below some minimum acceptable level over some time horizon shortfall risk - CORRECT ANSWER the risk that portfolio value will fall below some minimum acceptable level over some time horizion value at risk - CORRECT ANSWER a money measure of the minimum value of losses expected during a specific time period at a given level of probability continuously compounded return - CORRECT ANSWER the natural logarithm of 1 + the holding period return, or equivalently, the natural logarithm of the ending price over the beginning price independently and identically distributed - CORRECT ANSWER with respect to random variables, the property of random variables that are independent of each other but follow the identical probability distribution asian call option - CORRECT ANSWER 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, whichever is greater simulation trial - CORRECT ANSWER a complete pass through the steps of a simulation solvency - CORRECT ANSWER with respect to financial statement analysis, the ability of a company to fulfill its long-term obligations balance sheet - CORRECT ANSWER the financial statement that presents an entity's current financial position by disclosing resources the entity controls (its assets) and the claims on those resources (its liabilities and equity claims), as of a particular point in time revenue - CORRECT ANSWER 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 financial flexibility - CORRECT ANSWER the ability to react and adapt to financial adversities and opportunities operating activities - CORRECT ANSWER activities that are part of the day-to-day business functioning of an entity, such as selling inventory and providing services investing activities - CORRECT ANSWER activities which are associated with the acquisition and disposal of property, plant, and equipment; intangible assets; other long term assets; and both long-term and short-term investments in the equity and debt (bonds and loans) issued by other companies degrees of freedom - CORRECT ANSWER the number of independent observations used data mining - CORRECT ANSWER the practice of determining a model by extensive searching through a dataset for statistically significant pattern; also known as data snooping out-of-sample test - CORRECT ANSWER a test of a strategy or model using a sample outside the time period on which the strategy or model was developed intergenerational data mining - CORRECT ANSWER a form of data mining that applies information developed by previous researchers using a dataset to guide current research using the same or a related dataset sample selection bias - CORRECT ANSWER 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 look-ahead bias - CORRECT ANSWER a bias caused by using information that was unavailable on the test date time-period bias - CORRECT ANSWER the possibility that when we use a time-series sample, our statistical conclusion may be sensitive to the starting and ending dates of the sample stratified random sampling - CORRECT ANSWER sampling approach where the population is divided into subpopulations (strata) based on one or more classification criteria indexing - CORRECT ANSWER an investment strategy in which an investor constructs a portfolio to mirror the performance of a specified index unbiasedness - CORRECT ANSWER the expected value of the estimator is equal to the population parameter efficiency - CORRECT ANSWER an efficient estimator is unbiased and has a smaller variance than all other unbiased estimators consistency - CORRECT ANSWER tends to produce more accurate estimates of the population as sample size increases estimation - CORRECT ANSWER with reference to statistical inference, the subdivision dealing with estimating the value of a population parameter hypothesis testing - CORRECT ANSWER with reference to statistical inference, the subdivision dealing with the testing of hypotheses about one or more populations hypothesis - CORRECT ANSWER with reference to statistical inference, a statement about one or more populations null hypothesis - CORRECT ANSWER the hypothesis to be tested alternative hypothesis - CORRECT ANSWER the alternative hypothesis is the hypothesis accepted when the null hypothesis is rejected two-sided hypothesis test - CORRECT ANSWER 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 one-sided hypothesis test - CORRECT ANSWER a test in which the null hypothesis is rejected only if the evidence indicates that the population is greater than (smaller than) H0; the alternative hypothesis also has one side test statistic - CORRECT ANSWER a quantity, calculated based on a sample, whose value is the basis type I error - CORRECT ANSWER the error of rejecting a true null hypothesis type II error - CORRECT ANSWER the error of not rejecting a false null hypothesis level of significance - CORRECT ANSWER the probability of a Type I error in testing a hypothesis power of a test - CORRECT ANSWER the probability of correctly rejecting the null - that is, rejecting the null hypothesis when it is false statistically significant - CORRECT ANSWER a result indicating that the null hypothesis can be related; with reference to an estimated regression coefficient, frequently understood to mean a result indicating that the corresponding population regression coefficient is different from 0 rejection point (critical value) - CORRECT ANSWER a value with which the computed test statistic is compared to decide whether to reject or not reject the null hypothesis p-value - CORRECT ANSWER the smallest level of significance at which the null hypothesis can be rejected t-test - CORRECT ANSWER a hypothesis test using a statistic (t-statistic) that follows a t-distribution robust - CORRECT ANSWER the quality of being relatively unaffected by a violation of assumptions Securities Act of 1933 - CORRECT ANSWER this act specifies the 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 Securities Exchange Act of 1934 - CORRECT ANSWER this act created the SEC, gave the SEC authority over all aspects of the securities industry, and empowered the SEC to require periodic reporting by companies with publicly traded securities Sarbanes-Oxley Act of 2002 - CORRECT ANSWER this act created the Public Company Accounting Oversight Board to oversee auditors; this act addresses auditor's independence, strengthens corporate responsibility for financial reports