CFA Level 1 glossary 2020 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 CFA Level 1 glossary 2020 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. CFA Level 1 glossary 2020 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.