FINANCE 6100 SUU EXAM 3 PRACTICE TEST
2026 REAL QUESTIONS SOLVED ANSWERS
DETAILED REVIEW GRADED A+
⩥ What happens if a company is earning more than their WACC rate?
Less than?.
Answer: more: they are increasing the value of its equity
less: losing value for shareholders
⩥ WACC formula?
What do the different parts stand for?.
Answer: WACC = WdKd(1-T) + WeKe
Wd: weight of debt
Kd: cost of debt (interest rate)
T: Tax shield (cost of debt after interest)
We: weight of equity
Ke: return on equity
,⩥ What does the cost of debt mean?.
Answer: the interest rate we would expect to pay on borrowed funds
(Kd)
⩥ What is the best way to measure cost of debt?.
Answer: Bonds
⩥ Terms to know
Maturity/term
Remaining term
Face Value
Coupon Payment.
Answer: maturity/term: total life of the bond from origination to
termination
remaining term: how much time until maturity
face value: amount of money returned when the bond matures
, Coupon Payment: amount paid periodically to buyer.
⩥ coupon payment formula.
Answer: payment = face value (FV) x coupon rate
⩥ Where are the terms of a bond set?
what does it include? (4).
Answer: in the Indenture contract
1. coupon rate and frequency
2. options attached
3. maturity
4. face value
⩥ what is a "zero" bond?.
Answer: one with a coupon rate of 0. No payments are made to the
buyer.
⩥ Is this a premium or discount bond?
Interest rate < Coupon rate.
2026 REAL QUESTIONS SOLVED ANSWERS
DETAILED REVIEW GRADED A+
⩥ What happens if a company is earning more than their WACC rate?
Less than?.
Answer: more: they are increasing the value of its equity
less: losing value for shareholders
⩥ WACC formula?
What do the different parts stand for?.
Answer: WACC = WdKd(1-T) + WeKe
Wd: weight of debt
Kd: cost of debt (interest rate)
T: Tax shield (cost of debt after interest)
We: weight of equity
Ke: return on equity
,⩥ What does the cost of debt mean?.
Answer: the interest rate we would expect to pay on borrowed funds
(Kd)
⩥ What is the best way to measure cost of debt?.
Answer: Bonds
⩥ Terms to know
Maturity/term
Remaining term
Face Value
Coupon Payment.
Answer: maturity/term: total life of the bond from origination to
termination
remaining term: how much time until maturity
face value: amount of money returned when the bond matures
, Coupon Payment: amount paid periodically to buyer.
⩥ coupon payment formula.
Answer: payment = face value (FV) x coupon rate
⩥ Where are the terms of a bond set?
what does it include? (4).
Answer: in the Indenture contract
1. coupon rate and frequency
2. options attached
3. maturity
4. face value
⩥ what is a "zero" bond?.
Answer: one with a coupon rate of 0. No payments are made to the
buyer.
⩥ Is this a premium or discount bond?
Interest rate < Coupon rate.
