CFA Level II — FRA, Corporate Issuers and Quant flashcards
10 of 80 cards free to study here · 3 topics · the whole deck is built into Willys
Multiple regression and its violations, time series, machine learning, big data; intercorporate investments, pensions, FX translation, banks, earnings quality; cost of capital, payouts, ESG and corporate restructuring, with capital-structure theory, takeover defences and merger types as background.
Learn deck · part of CFA Program Level II · written against: CFA Program Level II curriculum topics (concepts and formulas; no figures that change yearly). Updated 2026-10-10.
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In a multiple regression, how is a partial slope coefficient interpreted?It is the expected change in the dependent variable for a one-unit change in that independent variable, holding all other independent variables constant.Quantitative Methods › Multiple Regression
Watch out: a partial slope depends on which other regressors are in the model; adding a correlated regressor can change its size and even its sign. -
A regression with 5 independent variables and 61 observations has an R² of 0.40. What is its adjusted R²?About 0.345. .Quantitative Methods › Multiple Regression
Why: adjusted R² penalizes extra variables, so it can fall when a weak variable is added. -
What null hypothesis does the regression F-test examine, and how is the statistic built?That all slope coefficients are jointly zero. (RSS = regression sum of squares, SSE = sum of squared errors), with k and n − k − 1 degrees of freedom; rejecting means at least one slope is nonzero.Quantitative Methods › Multiple Regression
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How does an analyst test whether a group of q variables can be dropped from a regression?With a nested-model F-test comparing restricted and unrestricted models: ; a large F means the dropped variables matter jointly.Quantitative Methods › Multiple Regression
Example: dropping 3 of 6 variables from a 50-observation model raises SSE from 200 to 230, so F = (30 ÷ 3) ÷ (200 ÷ 43) ≈ 2.15. -
An investor pays 600 for 30% of a company with book value of 1,500. Plant assets are undervalued by 200 (10-year life) and the rest of the excess is goodwill. The investee earns 300 and pays 100 of dividends. What are equity income and the year-end investment balance?Equity income = 84 (90 share of earnings − 6 extra depreciation on the 60 attributed to plant). Investment = 654 (600 + 84 − 30 dividends); the 90 of goodwill is not amortized.Financial Statement Analysis › Intercorporate Investments
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A 25%-owned investee sells inventory to the investor at a profit of 40, and half is still unsold at year-end. How much profit does the investor defer?5 — its 25% share of the 20 of unrealized profit; it is recognized when the goods are sold to third parties.Financial Statement Analysis › Intercorporate Investments
Watch out: the investor's share of unrealized profit is deferred for both upstream and downstream sales. -
How do IFRS and US GAAP differ in measuring goodwill and the noncontrolling interest in an acquisition?US GAAP requires full goodwill (NCI at fair value). IFRS lets the acquirer choose full goodwill or partial goodwill (NCI at its proportionate share of identifiable net assets).Financial Statement Analysis › Intercorporate Investments
Watch out: full goodwill gives higher goodwill, assets and equity than partial goodwill, so ROA and ROE look lower. -
How does a company's typical capital structure change across its life cycle?Start-ups rely mostly on equity because cash flows are uncertain; growth firms add some debt as revenues stabilize; mature firms with steady cash flows and tangible assets support more debt. Not in the 2026 Level II curriculum; background only.Corporate Issuers › Capital Structure
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What does the pecking order theory predict about how managers finance investment?Because of information asymmetry, managers prefer internal funds first, then debt, then new equity as a last resort.Corporate Issuers › Capital Structure
Not in the 2026 Level II curriculum; background only. -
Why does an announcement of a new share issue often lower the stock price?Investors read it as a signal that managers think the shares are overvalued, since informed insiders prefer to issue equity when it is expensive.Corporate Issuers › Capital Structure
Not in the 2026 Level II curriculum; background only.
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Review status: Second-reader reviewed, with corrections applied.
Checked against:
- CFA Program 2026 and 2027 Level II topic outlines (topic outline only; no text copied)
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