CFA Level 1 glossary
2020(updated)question and answers
A priori probability - correct answer A probability based on logical analysis rather than on observation or
personal judgment.
abnormal return - correct answer The amount by which a security's actual return differs from its
expected return, given the security's risk and the market's return.
absolute advantage - correct answer A country's ability to produce a good or service at a lower absolute
cost than its trading partner.
Absolute dispersion - correct answer The amount of variability present without comparison to any
reference point or benchmark.
Absolute frequency - correct answer The number of observations in a given interval (for grouped data).
Accelerated book build - correct answer An offering of securities by an investment bank acting as
principal that is accomplished in only one or two days.
Accelerated methods - correct answer Depreciation methods that allocate a relatively large proportion of
the cost of an asset to the early years of the asset's useful life.
Accounting costs - correct answer Monetary value of economic resources used in performing an activity.
These can be explicit, out-of-pocket, current payments, or an allocation of historical payments
(depreciation) for resources. They do not include implicit opportunity costs.
Accounting profit - correct answer Income as reported on the income statement, in accordance with
prevailing accounting standards, before the provisions for income tax expense. Also called income before
taxes or pretax income.
,Accounts payable - correct answer Amounts that a business owes to its vendors for goods and services
that were purchased from them but which have not yet been paid.
Accounts receivable turnover - correct answer Ratio of sales on credit to the average balance in accounts
receivable.
Accrued expenses - correct answer Liabilities related to expenses that have been incurred but not yet
paid as of the end of an accounting period—an example of an accrued expense is rent that has been
incurred but not yet paid, resulting in a liability "rent payable." Also called accrued liabilities.
Accrued interest - correct answer Interest earned but not yet paid.
Acid-test ratio - correct answer 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.
Acquisition method - correct answer A method of accounting for a business combination where the
acquirer is required to measure each identifiable asset and liability at fair value. This method was the
result of a joint project of the IASB and FASB aiming at convergence in standards for the accounting of
business combinations.
Action lag - correct answer Delay from policy decisions to implementation.
Active investment - correct answer An approach to investing in which the investor seeks to outperform a
given benchmark.
Active return - correct answer The return on a portfolio minus the return on the portfolio's benchmark.
Active strategy - correct answer In reference to short-term cash management, an investment strategy
characterized by monitoring and attempting to capitalize on market conditions to optimize the risk and
return relationship of short-term investments.
,Activity ratios - correct answer Ratios that measure how efficiently a company performs day-to-day tasks,
such as the collection of receivables and management of inventory. Also called asset utilization ratios or
operating efficiency ratios.
Add-on rates - correct answer Bank certificates of deposit, repos, and indexes such as Libor and Euribor
are quoted on an add-on rate basis (bond equivalent yield basis).
Addition rule for probabilities - correct answer A principle stating that the probability that A or B occurs
(both occur) equals the probability that A occurs, plus the probability that B occurs, minus the
probability that both A and B occur.
Agency bonds - correct answer See quasi-government bond.
Agency RMBS - correct answer In the United States, securities backed by residential mortgage loans and
guaranteed by a federal agency or guaranteed by either of the two GSEs (Fannie Mae and Freddie Mac).
Aggregate demand - correct answer The quantity of goods and services that households, businesses,
government, and foreign customers want to buy at any given level of prices.
Aggregate demand curve - correct answer Inverse relationship between the price level and real output.
Aggregate income - correct answer The value of all the payments earned by the suppliers of factors used
in the production of goods and services.
Aggregate output - correct answer The value of all the goods and services produced in a specified period
of time.
Aggregate supply - correct answer The quantity of goods and services producers are willing to supply at
any given level of price.
Aggregate supply curve - correct answer The level of domestic output that companies will produce at
each price level.
, Aging schedule - correct answer A breakdown of accounts into categories of days outstanding.
All-or-nothing (AON) orders - correct answer An order that includes the instruction to trade only if the
trade fills the entire quantity (size) specified.
Allocationally efficient - correct answer A characteristic of a market, a financial system, or an economy
that promotes the allocation of resources to their highest value uses.
Alternative data - correct answer Non-traditional data types generated by the use of electronic devices,
social media, satellite and sensor networks, and company exhaust.
Alternative investment markets - correct answer Market for investments other than traditional securities
investments (i.e., traditional common and preferred shares and traditional fixed income instruments).
The term usually encompasses direct and indirect investment in real estate (including timberland and
farmland) and commodities (including precious metals); hedge funds, private equity, and other
investments requiring specialized due diligence.
Alternative trading systems - correct answer Trading venues that function like exchanges but that do not
exercise regulatory authority over their subscribers except with respect to the conduct of the
subscribers' trading in their trading systems. Also called electronic communications networks or
multilateral trading facilities.
American depository receipt - correct answer A US dollar-denominated security that trades like a
common share on US exchanges.
American depository share - correct answer The underlying shares on which American depository
receipts are based. They trade in the issuing company's domestic market.
American-style - correct answer Type of option contract that can be exercised at any time up to the
option's expiration date.
Amortisation - correct answer The process of allocating the cost of intangible long-term assets having a
finite useful life to accounting periods; the allocation of the amount of a bond premium or discount to
the periods remaining until bond maturity.
2020(updated)question and answers
A priori probability - correct answer A probability based on logical analysis rather than on observation or
personal judgment.
abnormal return - correct answer The amount by which a security's actual return differs from its
expected return, given the security's risk and the market's return.
absolute advantage - correct answer A country's ability to produce a good or service at a lower absolute
cost than its trading partner.
Absolute dispersion - correct answer The amount of variability present without comparison to any
reference point or benchmark.
Absolute frequency - correct answer The number of observations in a given interval (for grouped data).
Accelerated book build - correct answer An offering of securities by an investment bank acting as
principal that is accomplished in only one or two days.
Accelerated methods - correct answer Depreciation methods that allocate a relatively large proportion of
the cost of an asset to the early years of the asset's useful life.
Accounting costs - correct answer Monetary value of economic resources used in performing an activity.
These can be explicit, out-of-pocket, current payments, or an allocation of historical payments
(depreciation) for resources. They do not include implicit opportunity costs.
Accounting profit - correct answer Income as reported on the income statement, in accordance with
prevailing accounting standards, before the provisions for income tax expense. Also called income before
taxes or pretax income.
,Accounts payable - correct answer Amounts that a business owes to its vendors for goods and services
that were purchased from them but which have not yet been paid.
Accounts receivable turnover - correct answer Ratio of sales on credit to the average balance in accounts
receivable.
Accrued expenses - correct answer Liabilities related to expenses that have been incurred but not yet
paid as of the end of an accounting period—an example of an accrued expense is rent that has been
incurred but not yet paid, resulting in a liability "rent payable." Also called accrued liabilities.
Accrued interest - correct answer Interest earned but not yet paid.
Acid-test ratio - correct answer 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.
Acquisition method - correct answer A method of accounting for a business combination where the
acquirer is required to measure each identifiable asset and liability at fair value. This method was the
result of a joint project of the IASB and FASB aiming at convergence in standards for the accounting of
business combinations.
Action lag - correct answer Delay from policy decisions to implementation.
Active investment - correct answer An approach to investing in which the investor seeks to outperform a
given benchmark.
Active return - correct answer The return on a portfolio minus the return on the portfolio's benchmark.
Active strategy - correct answer In reference to short-term cash management, an investment strategy
characterized by monitoring and attempting to capitalize on market conditions to optimize the risk and
return relationship of short-term investments.
,Activity ratios - correct answer Ratios that measure how efficiently a company performs day-to-day tasks,
such as the collection of receivables and management of inventory. Also called asset utilization ratios or
operating efficiency ratios.
Add-on rates - correct answer Bank certificates of deposit, repos, and indexes such as Libor and Euribor
are quoted on an add-on rate basis (bond equivalent yield basis).
Addition rule for probabilities - correct answer A principle stating that the probability that A or B occurs
(both occur) equals the probability that A occurs, plus the probability that B occurs, minus the
probability that both A and B occur.
Agency bonds - correct answer See quasi-government bond.
Agency RMBS - correct answer In the United States, securities backed by residential mortgage loans and
guaranteed by a federal agency or guaranteed by either of the two GSEs (Fannie Mae and Freddie Mac).
Aggregate demand - correct answer The quantity of goods and services that households, businesses,
government, and foreign customers want to buy at any given level of prices.
Aggregate demand curve - correct answer Inverse relationship between the price level and real output.
Aggregate income - correct answer The value of all the payments earned by the suppliers of factors used
in the production of goods and services.
Aggregate output - correct answer The value of all the goods and services produced in a specified period
of time.
Aggregate supply - correct answer The quantity of goods and services producers are willing to supply at
any given level of price.
Aggregate supply curve - correct answer The level of domestic output that companies will produce at
each price level.
, Aging schedule - correct answer A breakdown of accounts into categories of days outstanding.
All-or-nothing (AON) orders - correct answer An order that includes the instruction to trade only if the
trade fills the entire quantity (size) specified.
Allocationally efficient - correct answer A characteristic of a market, a financial system, or an economy
that promotes the allocation of resources to their highest value uses.
Alternative data - correct answer Non-traditional data types generated by the use of electronic devices,
social media, satellite and sensor networks, and company exhaust.
Alternative investment markets - correct answer Market for investments other than traditional securities
investments (i.e., traditional common and preferred shares and traditional fixed income instruments).
The term usually encompasses direct and indirect investment in real estate (including timberland and
farmland) and commodities (including precious metals); hedge funds, private equity, and other
investments requiring specialized due diligence.
Alternative trading systems - correct answer Trading venues that function like exchanges but that do not
exercise regulatory authority over their subscribers except with respect to the conduct of the
subscribers' trading in their trading systems. Also called electronic communications networks or
multilateral trading facilities.
American depository receipt - correct answer A US dollar-denominated security that trades like a
common share on US exchanges.
American depository share - correct answer The underlying shares on which American depository
receipts are based. They trade in the issuing company's domestic market.
American-style - correct answer Type of option contract that can be exercised at any time up to the
option's expiration date.
Amortisation - correct answer The process of allocating the cost of intangible long-term assets having a
finite useful life to accounting periods; the allocation of the amount of a bond premium or discount to
the periods remaining until bond maturity.
