FIN 300 FINANCIAL MARKETS AND STATEMENTS EXAM QUESTIONS ANSWERED CORRECTLY LATEST
UPDATE 2026
Income Statement Flow - Answers Sales → COGS → Gross Profit → Operating Expenses → EBIT →
Interest → EBT → Taxes → Net Income
Tax Problems Flow - Answers EBT → +50% Dividends → +Capital Gains → −Allowable Capital Losses
→ ×21% Tax → True Net Income → −Preferred Dividends → EPS
Balance Sheet Flow - Answers Current Assets → Fixed Assets → Current Liabilities → Long-Term Debt
→ Common Stock → Retained Earnings
Financial Markets - Answers Bring together those who need capital (borrowers) with those who have
capital to invest (lenders).
Purpose of Financial Markets - Answers Match sources of capital with users of capital.
Corporate Financing Trends - Answers 75.5% Bonds (Debt), 4.1% Preferred Stock, 20.4% Common
Stock (Equity).
Debt Financing - Answers Borrowing money that must be repaid with interest.
Equity Financing - Answers Raising money by selling ownership in the company.
Money Market - Answers Market for short-term debt securities (less than one year).
Examples of Money Market Securities - Answers Treasury Bills (T-Bills), Certificates of Deposit (CDs).
Capital Market - Answers Market for long-term securities (more than one year).
Examples of Capital Market Securities - Answers Stocks and Bonds.
Primary Market - Answers Where new securities are issued and sold for the first time.
Secondary Market - Answers Where existing securities are bought and sold between investors.
Investment Banker - Answers Helps companies issue new securities.
Investment Banker's Three Main Jobs - Answers Underwriting, Distribution (selling), Advising.
Underwriting - Answers Investment banker purchases new shares from the company and assumes
the risk of selling them.
Distribution - Answers Selling newly issued securities to investors.
Advisement Capacity - Answers Helping firms determine how to issue securities.
Flotation Costs - Answers Costs a company pays to issue new securities.
Underwriter's Spread - Answers Difference between the price investors pay and what the company
receives.
Issuance Costs - Answers Legal, accounting, filing, and registration costs of issuing securities.
Most Expensive Security to Issue - Answers Common Stock.
Least Expensive Security to Issue - Answers Bonds.
Securities Act of 1933 - Answers Requires companies to fully disclose information when issuing new
securities.
Securities Exchange Act of 1934 - Answers Created the SEC to regulate securities markets.
SEC - Answers Securities and Exchange Commission; regulates financial markets.
Securities Acts Amendments of 1975 - Answers Created a national market system and eliminated
fixed commissions.
Shelf Registration - Answers Register securities once and sell them over time instead of all at once.
Risk-Free Investment - Answers Treasury Bills and Treasury Bonds because they are guaranteed by
the U.S. Treasury.
Risk-Free Rate (rrf) - Answers Return earned on a risk-free investment.
Formula for Risk-Free Rate - Answers rrf = Real Rate + Inflation Risk Premium (IRP).
Real Rate (r) - Answers Return investors require with no inflation.
Inflation Risk Premium (IRP) - Answers Extra return investors require because inflation reduces
purchasing power.
Example: If Real Rate = 1.5% and Inflation = 2.25%, What is rrf? - Answers 3.75%.
Example: If Inflation Increases to 3% and Real Rate is 1.5%, What is rrf? - Answers 4.5%.
Nominal Interest Rate (i) - Answers Actual observed interest rate.
Formula for Nominal Interest Rate - Answers i = r + IRP + Other Risk Premiums.
Other Risk Premiums - Answers Default Risk + Maturity Risk + Liquidity Risk.
Default Risk - Answers Chance the borrower cannot repay.
Maturity Risk - Answers Risk caused by changes in interest rates over longer time periods.
Liquidity Risk - Answers Risk that an investment cannot be sold quickly without losing value.
UPDATE 2026
Income Statement Flow - Answers Sales → COGS → Gross Profit → Operating Expenses → EBIT →
Interest → EBT → Taxes → Net Income
Tax Problems Flow - Answers EBT → +50% Dividends → +Capital Gains → −Allowable Capital Losses
→ ×21% Tax → True Net Income → −Preferred Dividends → EPS
Balance Sheet Flow - Answers Current Assets → Fixed Assets → Current Liabilities → Long-Term Debt
→ Common Stock → Retained Earnings
Financial Markets - Answers Bring together those who need capital (borrowers) with those who have
capital to invest (lenders).
Purpose of Financial Markets - Answers Match sources of capital with users of capital.
Corporate Financing Trends - Answers 75.5% Bonds (Debt), 4.1% Preferred Stock, 20.4% Common
Stock (Equity).
Debt Financing - Answers Borrowing money that must be repaid with interest.
Equity Financing - Answers Raising money by selling ownership in the company.
Money Market - Answers Market for short-term debt securities (less than one year).
Examples of Money Market Securities - Answers Treasury Bills (T-Bills), Certificates of Deposit (CDs).
Capital Market - Answers Market for long-term securities (more than one year).
Examples of Capital Market Securities - Answers Stocks and Bonds.
Primary Market - Answers Where new securities are issued and sold for the first time.
Secondary Market - Answers Where existing securities are bought and sold between investors.
Investment Banker - Answers Helps companies issue new securities.
Investment Banker's Three Main Jobs - Answers Underwriting, Distribution (selling), Advising.
Underwriting - Answers Investment banker purchases new shares from the company and assumes
the risk of selling them.
Distribution - Answers Selling newly issued securities to investors.
Advisement Capacity - Answers Helping firms determine how to issue securities.
Flotation Costs - Answers Costs a company pays to issue new securities.
Underwriter's Spread - Answers Difference between the price investors pay and what the company
receives.
Issuance Costs - Answers Legal, accounting, filing, and registration costs of issuing securities.
Most Expensive Security to Issue - Answers Common Stock.
Least Expensive Security to Issue - Answers Bonds.
Securities Act of 1933 - Answers Requires companies to fully disclose information when issuing new
securities.
Securities Exchange Act of 1934 - Answers Created the SEC to regulate securities markets.
SEC - Answers Securities and Exchange Commission; regulates financial markets.
Securities Acts Amendments of 1975 - Answers Created a national market system and eliminated
fixed commissions.
Shelf Registration - Answers Register securities once and sell them over time instead of all at once.
Risk-Free Investment - Answers Treasury Bills and Treasury Bonds because they are guaranteed by
the U.S. Treasury.
Risk-Free Rate (rrf) - Answers Return earned on a risk-free investment.
Formula for Risk-Free Rate - Answers rrf = Real Rate + Inflation Risk Premium (IRP).
Real Rate (r) - Answers Return investors require with no inflation.
Inflation Risk Premium (IRP) - Answers Extra return investors require because inflation reduces
purchasing power.
Example: If Real Rate = 1.5% and Inflation = 2.25%, What is rrf? - Answers 3.75%.
Example: If Inflation Increases to 3% and Real Rate is 1.5%, What is rrf? - Answers 4.5%.
Nominal Interest Rate (i) - Answers Actual observed interest rate.
Formula for Nominal Interest Rate - Answers i = r + IRP + Other Risk Premiums.
Other Risk Premiums - Answers Default Risk + Maturity Risk + Liquidity Risk.
Default Risk - Answers Chance the borrower cannot repay.
Maturity Risk - Answers Risk caused by changes in interest rates over longer time periods.
Liquidity Risk - Answers Risk that an investment cannot be sold quickly without losing value.
