CFA Level I terms: U

An unbiased estimate is one whose average across many samples equals the true value.

Range, mean absolute deviation, variance and standard deviation Quantitative Methods

An unbiased estimator is right on average: across all possible samples its expected value equals the parameter.

The central limit theorem and the standard error of the mean Quantitative Methods

An uncommitted line of credit is the least reliable. The bank agrees to lend up to a set amount for a set maximum period, but keeps the right to refuse any request.

Short-term funding for companies: credit lines, secured loans and commercial paper Fixed Income

When you have forecasts rather than history, this table is the raw material for the unconditional covariance: the covariance computed over all scenarios, before you know which one happens.

Covariance and correlation from a joint probability table Quantitative Methods

The unconditional mean of a random variable (also called the unconditional expectation, or simply the expected value) is the probability-weighted average of its possible outcomes.

Unconditional expected value, variance and standard deviation Quantitative Methods

The unconditional standard deviation is its square root, in the same units as the outcomes, so it is the figure to quote.

Unconditional expected value, variance and standard deviation Quantitative Methods

The unconditional variance is the probability-weighted average of the squared deviations from the expected value.

Unconditional expected value, variance and standard deviation Quantitative Methods

The rule is for uncorrelated returns in the sense of zero covariance, and independent variables satisfy it automatically.

Covariance and correlation from a joint probability table Quantitative Methods

A model that shows underfitting does the reverse: it treats real patterns as noise, is too simple, and does badly even on its training data.

AI and machine learning: supervised, unsupervised, reinforcement, deep Quantitative Methods

A derivative is a financial contract that derives its value from the performance of an underlying: an asset, a group of assets, a rate, an index or an event.

What a derivative is Derivatives

Compare the market price with your estimate of intrinsic value. If $P_t < IV_t$, the share is undervalued.

Market price, intrinsic value and perceived value Equities

The gap sorts undervalued and overvalued securities: a positive alpha means the asset plots above the SML.

The CAPM and the security market line Portfolio Construction

The underwriter structures and sells the securities. Rating agencies rate each tranche.

The securitization process and its parties Fixed Income

The company usually hires investment banks for underwriting: the banks manage the sale of the new shares and find the buyers.

Primary and secondary equity markets: issuing shares and why trading matters Equities

In an underwritten offering, banks guarantee the sale at a negotiated price. Frequent investment-grade issuers use a shelf registration, one broad offering document kept up to date that covers future issues, so they can move when markets are favorable.

Primary and secondary bond markets vs equity markets Fixed Income

Step 1 is the recoverability test: is the carrying amount more than the undiscounted cash flows the asset is expected to produce?

Impairment and derecognition of PP&E and intangibles Financial Statement Analysis

Under accrual accounting a credit sale creates revenue and a receivable at once, and cash received before delivery creates a liability instead. That liability is unearned revenue, also called deferred revenue.

Revenue recognition: the five-step model Financial Statement Analysis

A data set with one mode is unimodal; one with several is multi-modal (modes can also be local peaks, such as a cluster of small gains and a separate cluster of losses); and some data sets have no mode at all.

Mean, median, mode and what outliers do to them Quantitative Methods

Unique circumstances cover everything else that materially affects the portfolio, including beliefs and values.

IPS constraints: liquidity, time horizon, taxes, legal and unique circumstances Portfolio Construction

The analyst looks at margins, breakeven points and unit economics, which state revenues and costs per unit, per customer or per order.

Business model features Corporate Finance

Turned upside down, mean ÷ standard deviation is the return per unit of risk, sometimes called the unit price of risk.

Semi-deviation, downside deviation and the coefficient of variation Quantitative Methods

Unitranche debt blends tranches of secured and unsecured debt into one loan with a single interest rate. As a blend, its rate generally falls between the rates usually demanded on secured and on unsecured debt.

Private debt: direct lending, mezzanine, venture and distressed debt Alternative Investments

When the company sells units sold and price per unit in several regions, forecast each region's market, share and price, and add the regions.

Revenue models: historical, bottom-up and top-down Equities

Strip the comparables' leverage out to get the unlevered beta, which holds business risk only. Then put the company's own leverage back to get its relevered beta.

Industry betas, the market risk premium and country risk Equities

Fairly presented in accordance with the standards ("true and fair view" internationally)

Regulatory filings, notes, MD&A and the audit report Financial Statement Analysis

It can go to profit or loss, or to other comprehensive income (OCI), which bypasses the income statement and builds up in equity. These are unrealized gains: the asset has not been sold.

Financial instruments: amortized cost, FVOCI and FVPL Financial Statement Analysis

The realized value is cash already received from exits and distributions. The unrealized value is the estimated worth of what is still held.

IRR and multiple of invested capital (MOIC) Alternative Investments

An unsecured bond relies on operating cash flows alone, which is typical for higher-quality corporate issuers.

Bond indentures and covenants Fixed Income

An unsolicited trade request that you know is unsuitable should wait until you have talked it through. What happens next depends on the size of the effect.

Standard III(C): Suitability Ethical and Professional Standards

An unsponsored depositary receipt is issued by a bank without the company's involvement. The depository buys the shares in the home market and issues receipts through local brokers, and the depository bank keeps the voting rights.

Investing across jurisdictions: dual listings and depositary receipts Equities

Unstructured data have no tabular form: social media, email, texts, voice recordings, photos, video. They need specialized programs before an analyst can use them.

Big data, the four Vs and alternative data Quantitative Methods

In unsupervised learning no answer is provided; the algorithm describes the data and finds groups. In reinforcement learning a program learns by trial and error, acting in an environment and receiving rewards and penalties.

AI and machine learning: supervised, unsupervised, reinforcement, deep Quantitative Methods

Micro risk, also called unsystematic risk, is specific to the issuer and depends on one firm's own economics: its earning power, market position, sales growth, margins, and return on assets and equity.

Macro and micro risk and the risk-return trade-off Quantitative Methods

Unusual or infrequent items stay in continuing operations, are pretax, and are disclosed separately if material.

Non-recurring items, discontinued operations and accounting changes Financial Statement Analysis

The size of each move is set by the up and down gross returns, R_u and R_d. A gross return is the ending price divided by the starting price, so 30% up is R_u = 1.30 and 20% down is R_d = 0.80.

The one-period binomial tree and the hedge ratio Derivatives

The model is revised as quarterly or semiannual reports and other news arrive, and the scenarios and weights with it.

Scenario analysis with probability weights Equities

Low upfront cash. A futures contract needs initial margin and an option needs only its premium, both small against the price of the asset.

Why use derivatives: the four benefits Derivatives

For an option it only builds a fence: a lower bound and an upper bound. These no-arbitrage bounds follow from the option's payoff.

Option price bounds and replication vs forwards Derivatives

Taking control of suppliers or raw materials, through exclusive supply agreements, joint ventures or outright ownership.

Porter's Five Forces and economic moats Equities

US GAAP are developed by the Financial Accounting Standards Board (FASB). Their convergence on conceptual frameworks and existing standards was put on hold in the late 2000s, but major new standards, such as revenue recognition, leasing and credit losses, have been mostly or entirely converged.

IFRS vs US GAAP, new standards and other information sources Financial Statement Analysis

the measurement basis (cost or revaluation), the depreciation method and the useful life or depreciation rate;.

PP&E disclosures, fixed asset turnover and asset age Financial Statement Analysis

Useful life and salvage value set how fast an asset is expensed. A longer life or a higher salvage value means less depreciation each year.

How accounting choices and estimates manage earnings, cash flow and the balance sheet Financial Statement Analysis

Work through four steps in order: the big picture of sources of cash and uses of cash, then what drives each of operating, investing and financing cash flow.

Reading a cash flow statement: sources, uses and common-size Financial Statement Analysis

Uses of equity indexes fall into three groups: following market risk and return, evaluating and benchmarking portfolios and managers, and building index funds and other products that track them.

Types of equity indexes Equities

The uses of forecast models go beyond estimating one number.

Why build a disaggregated model, and at what level of detail Equities

Remember that technology and competition can break static growth assumptions. And practice using more than one model and approach.

Where DCF and growth models break down Equities

Utility is a measure of the satisfaction an investor gets from a portfolio. Here it is a simple score built from expected return and variance.

Risk aversion, utility and indifference curves Portfolio Construction

Generate power and produce drinking water, and transmit, store and distribute gas, water and electricity, plus waste treatment.

Infrastructure: economic vs social, greenfield vs brownfield Alternative Investments

Utility rises with expected return and falls with variance, more steeply for a more risk-averse investor. The utility function turns that into a single score.

Risk preferences, mean–variance utility and indifference curves Quantitative Methods

A utility token pays for services and fees inside a network. It compensates activity on the network and does not pay dividends.

Distributed ledgers and blockchain: how digital assets are recorded Alternative Investments