CFA Level 1 Glossary
2025/2026 – Complete Key
Terms & Definitions | Updated
Study Reference for All Exam
Topics
A priori probability - Answer✅A probability based on logical analysis rather than on observation or
personal judgment.
abnormal return - 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 - Answer✅A country's ability to produce a good or service at a lower absolute
cost than its trading partner.
Absolute dispersion - Answer✅The amount of variability present without comparison to any
reference point or benchmark.
Absolute frequency - Answer✅The number of observations in a given interval (for grouped data).
Accelerated book build - Answer✅An offering of securities by an investment bank acting as principal
that is accomplished in only one or two days.
Accelerated methods - 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 - 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 - 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 - 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 - Answer✅Ratio of sales on credit to the average balance in accounts
receivable.
Accrued expenses - 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 - Answer✅Interest earned but not yet paid.
Acid-test ratio - 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 - 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 - Answer✅Delay from policy decisions to implementation.
Active investment - Answer✅An approach to investing in which the investor seeks to outperform a
given benchmark.
Active return - Answer✅The return on a portfolio minus the return on the portfolio's benchmark.
Active strategy - 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 - 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 - 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 - 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 - Answer✅See quasi-government bond.
Agency RMBS - 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 - 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 - Answer✅Inverse relationship between the price level and real output.
Aggregate income - Answer✅The value of all the payments earned by the suppliers of factors used in
the production of goods and services.
Aggregate output - Answer✅The value of all the goods and services produced in a specified period of
time.
Aggregate supply - Answer✅The quantity of goods and services producers are willing to supply at
any given level of price.
Aggregate supply curve - Answer✅The level of domestic output that companies will produce at each
price level.
Aging schedule - Answer✅A breakdown of accounts into categories of days outstanding.
All-or-nothing (AON) orders - Answer✅An order that includes the instruction to trade only if the
trade fills the entire quantity (size) specified.
Allocationally efficient - 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 - Answer✅Non-traditional data types generated by the use of electronic devices,
social media, satellite and sensor networks, and company exhaust.
Alternative investment markets - 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 - 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 - Answer✅A US dollar-denominated security that trades like a common
share on US exchanges.
American depository share - Answer✅The underlying shares on which American depository receipts
are based. They trade in the issuing company's domestic market.
American-style - Answer✅Type of option contract that can be exercised at any time up to the
option's expiration date.
Amortisation - 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.
Amortised cost - Answer✅The historical cost (initially recognised cost) of an asset, adjusted for
amortisation and impairment.
Amortizing bond - Answer✅Bond with a payment schedule that calls for periodic payments of
interest and repayments of principal.
, Amortizing loan - Answer✅Loan with a payment schedule that calls for periodic payments of interest
and repayments of principal.
Annual percentage rate - Answer✅The cost of borrowing expressed as a yearly rate.
Annuity - Answer✅A finite set of level sequential cash flows.
Annuity due - Answer✅An annuity having a first cash flow that is paid immediately.
Anticipation stock - Answer✅Excess inventory that is held in anticipation of increased demand, often
because of seasonal patterns of demand.
Antidilutive - Answer✅With reference to a transaction or a security, one that would increase
earnings per share (EPS) or result in EPS higher than the company's basic EPS—antidilutive securities
are not included in the calculation of diluted EPS.
Arbitrage - Answer✅1) The simultaneous purchase of an undervalued asset or portfolio and sale of
an overvalued but equivalent asset or portfolio, in order to obtain a riskless profit on the price
differential. Taking advantage of a market inefficiency in a risk-free manner. 2) The condition in a
financial market in which equivalent assets or combinations of assets sell for two different prices,
creating an opportunity to profit at no risk with no commitment of money. In a well-functioning
financial market, few arbitrage opportunities are possible. 3) A risk-free operation that earns an
expected positive net profit but requires no net investment of money.
Arbitrage-free pricing - Answer✅The overall process of pricing derivatives by arbitrage and risk
neutrality. Also called the principle of no arbitrage.
Arbitrageurs - Answer✅Traders who engage in arbitrage. See arbitrage.
Arithmetic mean - Answer✅The sum of the observations divided by the number of observations.
Arms index - Answer✅A flow of funds indicator applied to a broad stock market index to measure
the relative extent to which money is moving into or out of rising and declining stocks.
Artificial intelligence - Answer✅Computer systems that exhibit cognitive and decision-making ability
comparable (or superior) to that of humans.
Asian call option - 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.
Ask - Answer✅The price at which a dealer or trader is willing to sell an asset, typically qualified by a
maximum quantity (ask size). See offer.
Ask size - Answer✅The maximum quantity of an asset that pertains to a specific ask price from a
trader. For example, if the ask for a share issue is $30 for a size of 1,000 shares, the trader is offering
to sell at $30 up to 1,000 shares.
Asset allocation - Answer✅The process of determining how investment funds should be distributed
among asset classes.
Asset-backed securities - Answer✅A type of bond issued by a legal entity called a special purpose
entity (SPE) on a collection of assets that the SPE owns. Also, securities backed by receivables and
loans other than mortgages.
Asset-based loan - Answer✅A loan that is secured with company assets.
2025/2026 – Complete Key
Terms & Definitions | Updated
Study Reference for All Exam
Topics
A priori probability - Answer✅A probability based on logical analysis rather than on observation or
personal judgment.
abnormal return - 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 - Answer✅A country's ability to produce a good or service at a lower absolute
cost than its trading partner.
Absolute dispersion - Answer✅The amount of variability present without comparison to any
reference point or benchmark.
Absolute frequency - Answer✅The number of observations in a given interval (for grouped data).
Accelerated book build - Answer✅An offering of securities by an investment bank acting as principal
that is accomplished in only one or two days.
Accelerated methods - 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 - 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 - 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 - 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 - Answer✅Ratio of sales on credit to the average balance in accounts
receivable.
Accrued expenses - 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 - Answer✅Interest earned but not yet paid.
Acid-test ratio - 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 - 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 - Answer✅Delay from policy decisions to implementation.
Active investment - Answer✅An approach to investing in which the investor seeks to outperform a
given benchmark.
Active return - Answer✅The return on a portfolio minus the return on the portfolio's benchmark.
Active strategy - 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 - 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 - 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 - 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 - Answer✅See quasi-government bond.
Agency RMBS - 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 - 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 - Answer✅Inverse relationship between the price level and real output.
Aggregate income - Answer✅The value of all the payments earned by the suppliers of factors used in
the production of goods and services.
Aggregate output - Answer✅The value of all the goods and services produced in a specified period of
time.
Aggregate supply - Answer✅The quantity of goods and services producers are willing to supply at
any given level of price.
Aggregate supply curve - Answer✅The level of domestic output that companies will produce at each
price level.
Aging schedule - Answer✅A breakdown of accounts into categories of days outstanding.
All-or-nothing (AON) orders - Answer✅An order that includes the instruction to trade only if the
trade fills the entire quantity (size) specified.
Allocationally efficient - 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 - Answer✅Non-traditional data types generated by the use of electronic devices,
social media, satellite and sensor networks, and company exhaust.
Alternative investment markets - 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 - 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 - Answer✅A US dollar-denominated security that trades like a common
share on US exchanges.
American depository share - Answer✅The underlying shares on which American depository receipts
are based. They trade in the issuing company's domestic market.
American-style - Answer✅Type of option contract that can be exercised at any time up to the
option's expiration date.
Amortisation - 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.
Amortised cost - Answer✅The historical cost (initially recognised cost) of an asset, adjusted for
amortisation and impairment.
Amortizing bond - Answer✅Bond with a payment schedule that calls for periodic payments of
interest and repayments of principal.
, Amortizing loan - Answer✅Loan with a payment schedule that calls for periodic payments of interest
and repayments of principal.
Annual percentage rate - Answer✅The cost of borrowing expressed as a yearly rate.
Annuity - Answer✅A finite set of level sequential cash flows.
Annuity due - Answer✅An annuity having a first cash flow that is paid immediately.
Anticipation stock - Answer✅Excess inventory that is held in anticipation of increased demand, often
because of seasonal patterns of demand.
Antidilutive - Answer✅With reference to a transaction or a security, one that would increase
earnings per share (EPS) or result in EPS higher than the company's basic EPS—antidilutive securities
are not included in the calculation of diluted EPS.
Arbitrage - Answer✅1) The simultaneous purchase of an undervalued asset or portfolio and sale of
an overvalued but equivalent asset or portfolio, in order to obtain a riskless profit on the price
differential. Taking advantage of a market inefficiency in a risk-free manner. 2) The condition in a
financial market in which equivalent assets or combinations of assets sell for two different prices,
creating an opportunity to profit at no risk with no commitment of money. In a well-functioning
financial market, few arbitrage opportunities are possible. 3) A risk-free operation that earns an
expected positive net profit but requires no net investment of money.
Arbitrage-free pricing - Answer✅The overall process of pricing derivatives by arbitrage and risk
neutrality. Also called the principle of no arbitrage.
Arbitrageurs - Answer✅Traders who engage in arbitrage. See arbitrage.
Arithmetic mean - Answer✅The sum of the observations divided by the number of observations.
Arms index - Answer✅A flow of funds indicator applied to a broad stock market index to measure
the relative extent to which money is moving into or out of rising and declining stocks.
Artificial intelligence - Answer✅Computer systems that exhibit cognitive and decision-making ability
comparable (or superior) to that of humans.
Asian call option - 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.
Ask - Answer✅The price at which a dealer or trader is willing to sell an asset, typically qualified by a
maximum quantity (ask size). See offer.
Ask size - Answer✅The maximum quantity of an asset that pertains to a specific ask price from a
trader. For example, if the ask for a share issue is $30 for a size of 1,000 shares, the trader is offering
to sell at $30 up to 1,000 shares.
Asset allocation - Answer✅The process of determining how investment funds should be distributed
among asset classes.
Asset-backed securities - Answer✅A type of bond issued by a legal entity called a special purpose
entity (SPE) on a collection of assets that the SPE owns. Also, securities backed by receivables and
loans other than mortgages.
Asset-based loan - Answer✅A loan that is secured with company assets.
