FIN380 FINAL CERTIFICATION SCRIPT 2026 QUESTIONS
WITH SOLUTIONS GRADED A+
● Bill, Jim and Shelly are all looking to buy the same stock that pays dividends. Bill plans on
holding the stock for one year. Jim plans on holding the stock for three years. Shelly plans on
holding the stock until she retires in 10 years. Which one of the following statements is
correct? A. Jim should be willing to pay three times as much for the stock as Bill because his
expected holding period is three times as long as Bill's. B. Bill will be willing to pay the most for
the stock because he will get his money back in one year when he sells. C. All three should be
willing to pay the same amount for the stock regardless of their holding period. D. Shelly
should be willing to pay the most for the stock because she will hold it the longest and hence
she will get the most dividends.. Answer: All three should be willing to pay the same amount
for the stock regardless of their holding period.
● You wish to earn a return of 10% on each of two stocks, A and B. Each of the stocks is
expected to pay a dividend of $4 in the upcoming year. The expected growth rate of dividends
is 6% for stock A and 5% for stock B. Using the constant growth DDM, the intrinsic value of
stock A _________. A. will be less than the intrinsic value of stock B B. will be higher than the
intrinsic value of stock B C. will be the same as the intrinsic value of stock B D. more
information is necessary to answer this question. Answer: will be higher than the intrinsic
value of stock B
● Firms with higher expected growth rates tend to have P/E ratios that are ___________ the
P/E ratios of firms with lower expected growth rates. equal to lower than higher than there is
not necessarily any linkage between risk and P/E ratios. Answer: higher than
● Rank the following fund category from most risky to least risky. I. Equity growth fund II.
Balanced fund III. Sector fund IV. Money market fund. Answer: 3, 1, 2, 4
● The Vanguard 500 Index Fund tracks the performance of the S&P 500. To do so the fund
buys shares in each S&P 500 company __________. a. by purchasing an equal dollar amount
of shares of each stock in the S&P500 b. by purchasing an equal number of shares of each
stock in the S&P 500 c. in proportion to the market value weight of the firm's equity in the
S&P500 d. in proportion to the price weight of the stock in the S&P500. Answer: in proportion
to the market value weight of the firm's equity in the S&P500
, ● Mutual funds provide the following for their shareholders: a. Record keeping and
administration b. diversification c. professional management d. Mutual funds provide
diversification, professional management, and record keeping and administration. Answer:
Mutual funds provide diversification, professional management, and record keeping and
administration
● __________ fund is defined as one where the fund charges a sales commission to either
buy into or exit the fund. a. a load b. a no-load c. an index d. a specialized sector fund.
Answer: a load
● __________ funds stand ready to redeem or issue shares at their net asset value. a. open
end b. hedge c. closed end d. index. Answer: open end
● The Semi-Strong form of Market Efficiency suggests that all _______________ is
incorporated into current pricing. Evidence in support of this theory is _________________. a.
all publicly available information, post-earnings announcement drift b. all information of any
kind, SEC prosecutions for insider trading c. all publicly available information, speed of
response to news dissemination d. all past price history, small firm effect. Answer: all publicly
available information, speed of response to news dissemination
● propenents of the EMH typically advocate a. a liberal investment strategy b. an aggressive
investment strategy c. a conservative investment strategy d. a passive investment strategy.
Answer: a passive investment strategy
● The primary objective of fundamental analysis is to identify __________. a. poor run firms
b. high P/E stocks c. well run firms d. mis-priced stocks. Answer: mis-priced stocks
● Dividend discount model (DDM). Answer: a formula for the intrinsic value of a firm equal to
the present value of all expected future dividends
● EMH. Answer: efficient markets hypothesis: the idea that competition among investors
works to eliminate all positive-NPV trading opportunities. implies that securities will be fairly
priced based on their future cash flows
● market efficiency. Answer: if capital markets are efficient, prices today reflect all currently
available information. The only way to "beat the market" is to be lucky
● Three economic forces that lead to market efficiency. Answer: 1. investor rationality:
everything is correctly priced 2. independent deviations from rationality: not everyone is
rational "noise" that is diversified away (over reacting and under reacting will cancel each
other out) 3. arbitrage: if 1 and 2 are not true only need one rational well-capitalized person to
sell below and buy above SML*
WITH SOLUTIONS GRADED A+
● Bill, Jim and Shelly are all looking to buy the same stock that pays dividends. Bill plans on
holding the stock for one year. Jim plans on holding the stock for three years. Shelly plans on
holding the stock until she retires in 10 years. Which one of the following statements is
correct? A. Jim should be willing to pay three times as much for the stock as Bill because his
expected holding period is three times as long as Bill's. B. Bill will be willing to pay the most for
the stock because he will get his money back in one year when he sells. C. All three should be
willing to pay the same amount for the stock regardless of their holding period. D. Shelly
should be willing to pay the most for the stock because she will hold it the longest and hence
she will get the most dividends.. Answer: All three should be willing to pay the same amount
for the stock regardless of their holding period.
● You wish to earn a return of 10% on each of two stocks, A and B. Each of the stocks is
expected to pay a dividend of $4 in the upcoming year. The expected growth rate of dividends
is 6% for stock A and 5% for stock B. Using the constant growth DDM, the intrinsic value of
stock A _________. A. will be less than the intrinsic value of stock B B. will be higher than the
intrinsic value of stock B C. will be the same as the intrinsic value of stock B D. more
information is necessary to answer this question. Answer: will be higher than the intrinsic
value of stock B
● Firms with higher expected growth rates tend to have P/E ratios that are ___________ the
P/E ratios of firms with lower expected growth rates. equal to lower than higher than there is
not necessarily any linkage between risk and P/E ratios. Answer: higher than
● Rank the following fund category from most risky to least risky. I. Equity growth fund II.
Balanced fund III. Sector fund IV. Money market fund. Answer: 3, 1, 2, 4
● The Vanguard 500 Index Fund tracks the performance of the S&P 500. To do so the fund
buys shares in each S&P 500 company __________. a. by purchasing an equal dollar amount
of shares of each stock in the S&P500 b. by purchasing an equal number of shares of each
stock in the S&P 500 c. in proportion to the market value weight of the firm's equity in the
S&P500 d. in proportion to the price weight of the stock in the S&P500. Answer: in proportion
to the market value weight of the firm's equity in the S&P500
, ● Mutual funds provide the following for their shareholders: a. Record keeping and
administration b. diversification c. professional management d. Mutual funds provide
diversification, professional management, and record keeping and administration. Answer:
Mutual funds provide diversification, professional management, and record keeping and
administration
● __________ fund is defined as one where the fund charges a sales commission to either
buy into or exit the fund. a. a load b. a no-load c. an index d. a specialized sector fund.
Answer: a load
● __________ funds stand ready to redeem or issue shares at their net asset value. a. open
end b. hedge c. closed end d. index. Answer: open end
● The Semi-Strong form of Market Efficiency suggests that all _______________ is
incorporated into current pricing. Evidence in support of this theory is _________________. a.
all publicly available information, post-earnings announcement drift b. all information of any
kind, SEC prosecutions for insider trading c. all publicly available information, speed of
response to news dissemination d. all past price history, small firm effect. Answer: all publicly
available information, speed of response to news dissemination
● propenents of the EMH typically advocate a. a liberal investment strategy b. an aggressive
investment strategy c. a conservative investment strategy d. a passive investment strategy.
Answer: a passive investment strategy
● The primary objective of fundamental analysis is to identify __________. a. poor run firms
b. high P/E stocks c. well run firms d. mis-priced stocks. Answer: mis-priced stocks
● Dividend discount model (DDM). Answer: a formula for the intrinsic value of a firm equal to
the present value of all expected future dividends
● EMH. Answer: efficient markets hypothesis: the idea that competition among investors
works to eliminate all positive-NPV trading opportunities. implies that securities will be fairly
priced based on their future cash flows
● market efficiency. Answer: if capital markets are efficient, prices today reflect all currently
available information. The only way to "beat the market" is to be lucky
● Three economic forces that lead to market efficiency. Answer: 1. investor rationality:
everything is correctly priced 2. independent deviations from rationality: not everyone is
rational "noise" that is diversified away (over reacting and under reacting will cancel each
other out) 3. arbitrage: if 1 and 2 are not true only need one rational well-capitalized person to
sell below and buy above SML*
