FIN 3400 EXAM 1 QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026

FIN 3400 EXAM 1 QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026 Ch1-Q1. Markets in which funds are transferred from those who have excess funds available to those who have a shortage of available funds are called A. commodity markets. B. funds markets. C. derivative exchange markets. D. financial markets. - Answers D. financial markets Ch1-Q2. Primary markets are markets where users of funds raise cash by selling securities to funds' suppliers. True False - Answers True Ch1-Q3. Secondary markets are markets used by corporations to raise cash by issuing securities for a short time period. True False - Answers False Ch1-Q4. Secondary markets help support primary markets because secondary markets I. Offer primary market purchasers liquidity for their holdings II. Update the price or value of the primary market claims III. Reduce the cost of trading the primary market claims - Answers I, II, and III Ch1-Q5. The NASDAQ is an example of a secondary market, and it is also an over-the-counter market. True False - Answers True Ch1-Q6. The New York Stock Exchange (NYSE) is an example of a primary market True False - Answers False Ch1-Q7. There are three types of major financial markets today: primary, secondary, and derivatives markets. The NYSE and NASDAQ are both examples of derivatives markets. True False - Answers False Ch1-Q8. Although corporation do not actually raise any funds in secondary markets, they are important to the economy and are not simply a legalized form of gambling. True False - Answers True Ch1-Q9. IBM creates and sells additional stock to the investment banker, Morgan Stanley. Morgan Stanley then resells the issue to the U.S. public. This transaction is an example of a(n) A. primary market transaction B. asset transformation by Morgan Stanley C. money market transaction D. foreign exchange transaction E. forward transaction - Answers A. primary market transaction Ch1-Q10. The diagram below is a diagram of the Users of funds -- Underwriter -- Supplies of Funds A. secondary markets B. primary markets C. money markets D. derivatives markets E. commodities markets - Answers B. primary markets Ch1-Q11. Money markets are the markets for securities with an original maturity of 1 year or less. True False - Answers True Ch1-Q12. The money market is the market in which ________ are traded. A. new issues of securities B. previously issued securities C. short-term debt instruments D. long-term debt and equity instruments - Answers C. short-term debt instruments Ch1-Q15. Long-term debt and equity instruments are traded in the ________ market. A. primary B. secondary C. capital D. money - Answers C. capital Ch1-Q16. Equity holders are called residual claimant, they gain more if the firm is operating well and has increased profit. True False - Answers True Ch1-Q17. Debt holders gain fixed income regardless of the firms' profitability. True False - Answers True Ch1-Q18. How does an increase in the value of the pound sterling affect consumers and businesses? Which statement is NOT correct? A. British consumers would consume less U.S. good but more domestic goods. B. British consumers would be more likely go abroad rather than travel in Britain. C. U.S. goods exported abroad will cost less in Britain, which makes American businesses more competitive. D. American consumers will decrease their purchases of British good because British goods will be more expensive in the U.S. - Answers A. British consumers would consume less U.S. good but more domestic goods. Ch2-Q19. An investor requires a 3 percent increase in purchasing power in order to induce her to lend. She expects inflation to be 2 percent next year. The nominal rate she must charge is about A. 1 percent. B. 5 percent. C. 2 percent. D. 3 percent. - Answers B. 5 percent. Ch2-Q20. An investor wants to be able to buy 5 percent more goods and services in the future in order to induce her to invest today. During the investment period prices are expected to rise by 2.5 percent. Which statement(s) below is/are true? I. 5 percent is the desired real risk-free interest rate. II. 7.5 percent is the approximate nominal rate of interest required. III. 2.5 percent is the expected inflation rate over the period. - Answers I, II, and III are true Ch2-Q21. The particular security's rate of return is 10.5%. Assume for all securities, the expected inflation is 2.7%, the real risk-free rate is 3.8%. The security's liquidity risk premium is 0.75%, and maturity risk premium is 1.95%. What is the particular security's default risk premium? (10.5% = 2.7% + 3.8% + .75% + 1.95% + DFP) Solve for DFP A. 2.0% B. 1.5% C. 1.3% D. 2.4% - Answers C. 1.3% Ch2-Q22. Which of the following would normally be expected to result in an increase in the supply of funds, all else equal? I. The perceived riskiness of all investments decreases. II. Expected inflation increases. III. Current income and wealth levels increase. IV. Near term spending needs of households decrease as energy costs decline. - Answers I, III, and IV Ch2-Q23. When prices in the stock market become more uncertain, the supply curve of the loanable funds (for bonds) shifts to the ________ and the interest rate ________. A. right; rises B. right; falls C. left; falls D. left; rises - Answers B. right; falls Ch2-Q24. When stock prices become less volatile, the supply curve of the loanable funds (for bonds) shifts to the ________ and the interest rate ________. A. right; rises B. right; falls C. left; falls D. left; rises - Answers D. left; rises Ch2-Q25. Investors make their choices of which assets to hold by comparing the expected return and risk of alternative assets. True False - Answers True Ch2-Q26. When people begin to expect a large stock market decline, the supply curve of the loanable funds (for bonds) shifts to the ________ and the interest rate ________. A. right; falls B. right; rises C. left; falls D. left; rises - Answers A. right; falls Ch2-Q45. Which of the following long-term bonds should have the lowest interest rate? A. Corporate Baa bonds B. U.S. Treasury bonds C. Corporate Aaa bonds D. Municipal bonds - Answers D. Municipal Bonds Ch2-Q41. In the pandemic and aftermath of the global financial crisis, interest rates in Europe and the United States, as well as in Japan, have fallen to extremely low levels (even negative rates). The main reason is that all these countries have been experiencing low and even negative inflation rate, and very low economic growth rates. True False - Answers True Ch2-Q27. When people begin to expect a large run up in real estate prices, the supply of loanable funds for bonds shifts to the ________ and the interest rate ________. A. right; rises B. right; falls C. left; falls D. left; rises - Answers D. left; rises Ch2-Q28. When the federal government's budget deficit increases, the ________ curve of loanable funds shifts to the ________, and the interest rate _____. A. demand; right; rises