CFA Level 1 glossary 2023 Exam with complete solutions

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. Asset-based valuation models - Answer- Valuation based on estimates of the market value of a company's assets. Asset beta - Answer- The unlevered beta; reflects the business risk of the assets; the asset's systematic risk. Asset class - Answer- A group of assets that have similar characteristics, attributes, and risk/return relationships. Asset swap - Answer- Converts the periodic fixed coupon of a specific bond to a Libor plus or minus a spread. Asset utilization ratios - Answer- Ratios that measure how efficiently a company performs day-to-day tasks, such as the collection of receivables and management of inventory. Assets Resources - Answer- controlled by an enterprise as a result of past events and from which future economic benefits to the enterprise are expected to flow. Assignment of accounts receivable - Answer- The use of accounts receivable as collateral for a loan. At the money - Answer- An option in which the underlying's price equals the exercise price. Auction - Answer- A type of bond issuing mechanism often used for sovereign bonds that involves bidding. Autarkic price - Answer- The price of a good or service in an autarkic economy. Autarky - Answer- A state in which a country does not trade with other countries. Automated Clearing House (ACH) - Answer- An electronic payment network available to businesses, individuals, and financial institutions in the United States, US Territories, and Canada. Automatic stabilizer - Answer- A countercyclical factor that automatically comes into play as an economy slows and unemployment rises. Available-for-sale - Answer- Under US GAAP, debt securities not classified as either held-to-maturity or held-for-trading securities. The investor is willing to sell but not actively planning to sell. In general, available-for-sale debt securities are reported at fair value on the balance sheet, with unrealized gains included as a component of other comprehensive income. Average accounting rate of return (ARR) - Answer- Over the life of a project, the AAR can be defined as the average net income divided by the average book value. Average fixed cost - Answer- Total fixed cost divided by quantity produced. Average life - Answer- See weighted average life. Average product - Answer- Measures the productivity of inputs on average and is calculated by dividing total product by the total number of units for a given input that is used to generate that output. Average revenue - Answer- Total revenue divided by quantity sold. Average total cost - Answer- Total cost divided by quantity produced. Average variable cost - Answer- Total variable cost divided by quantity produced. Back simulation - Answer- Another term for the historical method of estimating VaR. This term is somewhat misleading in that the method involves not a simulation of the past but rather what actually happened in the past, sometimes adjusted to reflect the fact that a different portfolio may have existed in the past than is planned for the future. Back-testing - Answer- With reference to portfolio strategies, the application of a strategy's portfolio selection rules to historical data to assess what would have been the strategy's historical performance. Backup lines of credit - Answer- A type of credit enhancement provided by a bank to an issuer of commercial paper to ensure that the issuer will have access to sufficient liquidity to repay maturing commercial paper if issuing new paper is not a viable option. Balance of payments - Answer- A double-entry bookkeeping system that summarizes a country's economic transactions with the rest of the world for a particular period of time, typically a calendar quarter or year. Balance of trade deficit - Answer- When the domestic economy is spending more on foreign goods and services than foreign economies are spending on domestic goods and services. Balance sheet - 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 (the date of the balance sheet). Also called statement of financial position or statement of financial condition. Balance sheet ratios - Answer- Financial ratios involving balance sheet items only. Balanced - Answer- With respect to a government budget, one in which spending and revenues (taxes) are equal. Balloon payment - Answer- Large payment required at maturity to retire a bond's outstanding principal amount. Bar chart - Answer- A price chart with four bits of data for each time interval—the high, low, opening, and closing prices. A vertical line connects the high and low. A cross-hatch left indicates the opening price and a cross-hatch right indicates the close. Barter economy - Answer- An economy where economic agents as house-holds, corporations, and governments "pay" for goods and services with another good or service. Base rates - Answer- The reference rate on which a bank bases lending rates to all other customers. Basic EPS - Answer- Net earnings available to common shareholders (i.e., net income minus preferred dividends) divided by the weighted average number of common shares outstanding. Basis point - Answer- Used in stating yield spreads, one basis point equals one-hundredth of a percentage point, or 0.01%. Basket of listed depository receipts - Answer- An exchange-traded fund (ETF) that represents a portfolio of depository receipts. Bearer bonds - Answer- Bonds for which ownership is not recorded; only the clearing system knows who the bond owner is. Behavioral finance - Answer- A field of finance that examines the psychological variables that affect and often distort the investment decision making of investors, analysts, and portfolio managers. Behind the market - Answer- Said of prices specified in orders that are worse than the best current price; e.g., for a limit buy order, a limit price below the best bid. Benchmark - Answer- A comparison portfolio; a point of reference or comparison. Benchmark issue - Answer- The latest sovereign bond issue for a given maturity. It serves as a benchmark against which to compare bonds that have the same features but that are issued by another type of issuer. Benchmark rate - Answer- Typically the yield-to-maturity on a government bond having the same, or close to the same, time-to-maturity. Benchmark spread - Answer- The yield spread over a specific benchmark, usually measured in basis points. Bernoulli random variable - Answer- A random variable having the outcomes 0 and 1. Bernoulli trial - Answer- An experiment that can produce one of two outcomes. Best bid - Answer- The highest bid in the market. Best effort offering - Answer- An offering of a security using an investment bank in which the investment bank, as agent for the issuer, promises to use its best efforts to sell the offering but does not guarantee that a specific amount will be sold. Best-in-class - Answer- An ESG implementation approach that seeks to identify the most favorable companies in an industry based on ESG considerations. Best offer - Answer- The lowest offer (ask price) in the market. Beta - Answer- A measure of the sensitivity of a given investment or portfolio to movements in the overall market. Bid - Answer- The price at which a dealer or trader is willing to buy an asset, typically qualified by a maximum quantity. Bid-ask spread - Answer- The difference between the prices at which dealers will buy from a customer (bid) and sell to a customer (offer or ask). It is often used as an indicator of liquidity. Bid-offer spread - Answer- The difference between the prices at which dealers will buy from a customer (bid) and sell to a customer (offer or ask). It is often used as an indicator of liquidity. Bid size - Answer- The maximum quantity of an asset that pertains to a specific bid price from a trader. Big Data - Answer- The vast amount of data being generated by industry, governments, individuals, and electronic devices that arises from both traditional and non-traditional data sources. Bilateral loan - Answer- A loan from a single lender to a single borrower. Binomial model - Answer- A model for pricing options in which the underlying price can move to only one of two possible new prices. Binomial random variable - Answer- The number of successes in n Bernoulli trials for which the probability of success is constant for all trials and the trials are independent. Binomial tree - Answer- The graphical representation of a model of asset price dynamics in which, at each period, the asset moves up with probability p or down with probability (1 - p). Bitcoin - Answer- A cryptocurrency using blockchain technology that was created in 2009. Block brokers - Answer- A broker (agent) that provides brokerage services for large-size trades. Blockchain - Answer- A type of digital ledger in which information is recorded sequentially and then linked together and secured using cryptographic methods. Blue chip - Answer- Widely held large market capitalization companies that are considered financially sound and are leaders in their respective industry or local stock market. Bollinger Bands - Answer- A price-based technical analysis indicator consisting of a moving average plus a higher line representing the moving average plus a set number of standard deviations from average price (for the same number of periods as used to calculate the moving average) and a lower line that is a moving average minus the same number of standard deviations. Bond - Answer- Contractual agreement between the issuer and the bondholders. Bond equivalent yield - Answer- A calculation of yield that is annualized using the ratio of 365 to the number of days to maturity. Bond equivalent yield allows for the restatement and comparison of securities with different compounding periods. Bond indenture - Answer- The governing legal credit agreement, typically incorporated by reference in the prospectus. Also called trust deed. Bond market vigilantes - Answer- Bond market participants who might reduce their demand for long-term bonds, thus pushing up their yields. Bond yield plus risk premium approach - Answer- An estimate of the cost of common equity that is produced by summing the before-tax cost of debt and a risk premium that captures the additional yield on a company's stock relative to its bonds. The additional yield is often estimated using historical spreads between bond yields and stock yields. Bonus issue of shares - Answer- A type of dividend in which a company distributes additional shares of its common stock to shareholders instead of cash. Book building Investment bankers' process of compiling a "book" or list of indications of interest to buy part of an offering. - Answer- Book value - Answer- The net amount shown for an asset or liability on the balance sheet; book value may also refer to the company's excess of total assets over total liabilities. Also called carrying value. Boom - Answer- An expansionary phase characterized by economic growth "testing the limits" of the economy. Bottom-up analysis - Answer- An investment selection approach that focuses on company-specific circumstances rather than emphasizing economic cycles or industry analysis. Break point - Answer- In the context of the weighted average cost of capital (WACC), a break point is the amount of capital at which the cost of one or more of the sources of capital changes, leading to a change in the WACC. Breakeven point - Answer- The number of units produced and sold at which the company's net income is zero (Revenues = Total cost); in the case of perfect competition, the quantity at which price, average revenue, and marginal revenue equal average total cost. Bridge financing - Answer- Interim financing that provides funds until permanent financing can be arranged. Broad money - Answer- Encompasses narrow money plus the entire range of liquid assets that can be used to make purchases. Broker - Answer- 1) An agent who executes orders to buy or sell securities on behalf of a client in exchange for a commission. 2) See futures commission merchants. Broker-dealer - Answer- A financial intermediary (often a company) that may function as a principal (dealer) or as an agent (broker) depending on the type of trade. Brokered market - Answer- A market in which brokers arrange trades among their clients. Budget surplus/deficit - Answer- The difference between government revenue and expenditure for a stated fixed period of time. Bullet bond - Answer- Bond in which the principal repayment is made entirely at maturity. Business risk - Answer- The risk associated with operating earnings. Operating earnings are uncertain because total revenues and many of the expenditures contributed to produce those revenues are uncertain. Buy-side firm - Answer- An investment management company or other investor that uses the services of brokers or dealers (i.e., the client of the sell side firms). Buyback - Answer- A transaction in which a company buys back its own shares. Unlike stock dividends and stock splits, share repurchases use corporate cash. Call - Answer- An option that gives the holder the right to buy an underlying asset from another party at a fixed price over a specific period of time. Call market - Answer- A market in which trades occur only at a particular time and place (i.e., when the market is called). Call money rate - Answer- The interest rate that buyers pay for their margin loan. Call option - Answer- An option that gives the holder the right to buy an underlying asset from another party at a fixed price over a specific period of time. Call protection - Answer- The time during which the issuer of the bond is not allowed to exercise the call option. Callable bond - Answer- A bond containing an embedded call option that gives the issuer the right to buy the bond back from the investor at specified prices on pre-determined dates. Candlestick chart - Answer- A price chart with four bits of data for each time interval. A candle indicates the opening and closing price for the interval. The body of the candle is shaded if the opening price was higher than the closing price, and the body is clear if the opening price was lower than the closing price. Vertical lines known as wicks or shadows extend from the top and bottom of the candle to indicate the high and the low prices for the interval. Cannibalization - Answer- Cannibalization occurs when an investment takes customers and sales away from another part of the company. Capacity - Answer- The ability of the borrower to make its debt payments on time. Capital account - Answer- A component of the balance of payments account that measures transfers of capital. Capital allocation line (CAL) - Answer- A graph line that describes the combinations of expected return and standard deviation of return available to an investor from combining the optimal portfolio of risky assets with the risk-free asset. Capital asset pricing model - Answer- (CAPM) An equation describing the expected return on any asset (or portfolio) as a linear function of its beta relative to the market portfolio. Capital budgeting - Answer- The process that companies use for decision making on capital projects—those projects with a life of one year or more. Capital consumption allowance - Answer- A measure of the wear and tear (depreciation) of the capital stock that occurs in the production of goods and services. Capital deepening investment - Answer- Increases the stock of capital relative to labor. Capital expenditure - Answer- Expenditure on physical capital (fixed assets). Capital lease - Answer- See finance lease. Capital market expectations - Answer- An investor's expectations concerning the risk and return prospects of asset classes. Capital market line (CML) - Answer- The line with an intercept point equal to the risk-free rate that is tangent to the efficient frontier of risky assets; represents the efficient frontier when a risk-free asset is available for investment. Capital market securities - Answer- Securities with maturities at issuance longer than one year. Capital markets - Answer- Financial markets that trade securities of longer duration, such as bonds and equities. Capital rationing - Answer- A capital rationing environment assumes that the company has a fixed amount of funds to invest. Capital restrictions - Answer- Controls placed on foreigners' ability to own domestic assets and/or domestic residents' ability to own foreign assets. Capital stock - Answer- The accumulated amount of buildings, machinery, and equipment used to produce goods and services. Capital structure - Answer- The mix of debt and equity that a company uses to finance its business; a company's specific mixture of long-term financing. Captive finance subsidiary - Answer- A wholly-owned subsidiary of a company that is established to provide financing of the sales of the parent company. Carry - Answer- The net of the costs and benefits of holding, storing, or "carrying" an asset. Carrying amount - Answer- The amount at which an asset or liability is valued according to accounting principles. Carrying value - Answer- The net amount shown for an asset or liability on the balance sheet; book value may also refer to the company's excess of total assets over total liabilities. For a bond, the purchase price plus (or minus) the amortized amount of the discount (or premium). Cartel - Answer- Participants in collusive agreements that are made openly and formally. Cash collateral account - Answer- Form of external credit enhancement whereby the issuer immediately borrows the credit-enhancement amount and then invests that amount, usually in highly rated short-term commercial paper. Cash conversion cycle - Answer- A financial metric that measures the length of time required for a company to convert cash invested in its operations to cash received as a result of its operations; equal to days of inventory on hand + days of sales outstanding - number of days of payables. Also called net operating cycle. Cash flow additivity principle - Answer- The principle that dollar amounts indexed at the same point in time are additive. Cash flow from operating activities - Answer- The net amount of cash provided from operating activities. Cash flow from operations - Answer- The net amount of cash provided from operating activities. Cash flow yield - Answer- The internal rate of return on a series of cash flows. Cash market securities - Answer- Money market securities settled on a "same day" or "cash settlement" basis. Cash markets - Answer- See spot markets. Cash prices - Answer- See spot prices. Cash-settled forwards - Answer- See non-deliverable forwards. CBOE Volatility Index - Answer- A measure of near-term market volatility as conveyed by S&P 500 stock index option prices. Central bank funds market - Answer- The market in which deposit-taking banks that have an excess reserve with their national central bank can loan money to banks that need funds for maturities ranging from overnight to one year. Called the Federal or Fed funds market in the United States. Central bank funds rates - Answer- Interest rates at which central bank funds are bought (borrowed) and sold (lent) for maturities ranging from overnight to one year. Called Federal or Fed funds rates in the United States. Central banks - Answer- The dominant bank in a country, usually with official or semi-official governmental status. Certificate of deposit - Answer- An instrument that represents a specified amount of funds on deposit with a bank for a specified maturity and interest rate. CDs are issued in various denominations and can be negotiable or non-negotiable. Change in polarity principle - Answer- A tenet of technical analysis that once a support level is breached, it becomes a resistance level. The same holds true for resistance levels; once breached, they become support levels. Change of control put - Answer- A covenant giving bondholders the right to require the issuer to buy back their debt, often at par or at some small premium to par value, in the event that the borrower is acquired. Character - Answer- The quality of a debt issuer's management. Classified balance sheet - Answer- A balance sheet organized so as to group together the various assets and liabilities into subcategories (e.g., current and noncurrent). Clawback - Answer- A requirement that the general partner return any funds distributed as incentive fees until the limited partners have received back their initial investment and a percentage of the total profit. Clearing - Answer- The process by which the exchange verifies the execution of a transaction and records the participants' identities. Clearing instructions - Answer- Instructions that indicate how to arrange the final settlement ("clearing") of a trade. Clearinghouse - Answer- An entity associated with a futures market that acts as middleman between the contracting parties and guarantees to each party the performance of the other. Closed economy - Answer- An economy that does not trade with other countries; an autarkic economy. Closed-end fund - Answer- A mutual fund in which no new investment money is accepted. New investors invest by buying existing shares, and investors in the fund liquidate by selling their shares to other investors. Code of ethics - Answer- An established guide that communicates an organization's values and overall expectations regarding member behavior. A code of ethics serves as a general guide for how community members should act. Coefficient of variation (CV) - Answer- The ratio of a set of observations' standard deviation to the observations' mean value. Coincident economic indicators - Answer- Turning points that are usually close to those of the overall economy; they are believed to have value for identifying the economy's present state. Collateral manager - Answer- Buys and sells debt obligations for and from the CDO's portfolio of assets (i.e., the collateral) to generate sufficient cash flows to meet the obligations to the CDO bondholders. Collateral trust bonds - Answer- Bonds secured by securities such as common shares, other bonds, or other financial assets. Collateralized bond obligations - Answer- A structured asset-backed security that is collateralized by a pool of bonds. Collateralized debt obligation - Answer- Generic term used to describe a security backed by a diversified pool of one or more debt obligations. Collateralized loan obligations - Answer- A structured asset-backed security that is collateralized by a pool of loans. Collateralized mortgage obligation - Answer- A security created through the securitization of a pool of mortgage-related products (mortgage pass-through securities or pools of loans). Collaterals - Answer- Assets or financial guarantees underlying a debt obligation that are above and beyond the issuer's promise to pay. Combination - Answer- A listing in which the order of the listed items does not matter. Commercial paper - Answer- A short-term, negotiable, unsecured promissory note that represents a debt obligation of the issuer. Committed capital - Answer- The amount that the limited partners have agreed to provide to the private equity fund. Committed lines of credit - Answer- A bank commitment to extend credit up to a pre-specified amount; the commitment is considered a short-term liability and is usually in effect for 364 days (one day short of a full year). Commodity swap - Answer- A swap in which the underlying is a commodity such as oil, gold, or an agricultural product. Common market - Answer- Level of economic integration that incorporates all aspects of the customs union and extends it by allowing free movement of factors of production among members. Common shares - Answer- A type of security that represent an ownership interest in a company. Common-size analysis - Answer- The restatement of financial statement items using a common denominator or reference item that allows one to identify trends and major differences; an example is an income statement in which all items are expressed as a percent of revenue. Common stock - Answer- See common shares. Company analysis - Answer- Analysis of an individual company. Comparable company - Answer- A company that has similar business risk; usually in the same industry and preferably with a single line of business. Comparative advantage - Answer- A country's ability to produce a good or service at a lower relative cost, or opportunity cost, than its trading partner. Competitive strategy - Answer- A company's plans for responding to the threats and opportunities presented by the external environment. Complements - Answer- Goods that tend to be used together; technically, two goods whose cross-price elasticity of demand is negative. Complete markets - Answer- Informally, markets in which the variety of distinct securities traded is so broad that any desired payoff in a future state-of-the-world is achievable. Component cost of capital - Answer- The rate of return required by suppliers of capital for an individual source of a company's funding, such as debt or equity. Compounding - Answer- The process of accumulating interest on interest. Comprehensive income - Answer- The change in equity of a business enterprise during a period from nonowner sources; includes all changes in equity during a period except those resulting from investments by owners and distributions to owners; comprehensive income equals net income plus other comprehensive income. Conditional expected value - Answer- The expected value of a stated event given that another event has occurred. Conditional probability - Answer- The probability of an event given (conditioned on) another event. Conditional variances - Answer- The variance of one variable, given the outcome of another. Consistent - Answer- With reference to estimators, describes an estimator for which the probability of estimates close to the value of the population parameter increases as sample size increases. Constant-yield price trajectory - Answer- A graph that illustrates the change in the price of a fixed-income bond over time assuming no cha