FINC 3610 Exam 2 Practice Questions & Answers
(Verified Update)
This comprehensive study guide covers the core domains tested
on FINC 3610 Exam 2: Valuation & Financial Markets at Auburn
University. It includes original practice questions with detailed
rationales, organized by the core exam domains: Primary vs.
Secondary Financial Markets, Bond Structures & Features,
Interest Rate Risk, and Stock Valuation (Preferred vs. Common
Stock) .
Exam Overview & Blueprint:
Parameter Details
Exam
Multiple-choice, true/false, and calculation-based questions
Format
Primary vs. secondary markets, NYSE vs. NASDAQ, bond pricing, yield to maturity, duration, interest rate
Core Topics
risk, dividend discount models, preferred vs. common stock
Key
Bond Price = C × [1 - (1+r)^-t]/r + F/(1+r)^t; Current Yield = C/P; YTM; P₀ = D₁/(r-g); P₀ = D/r (preferred)
Formulas
NGN-style application problems, bond pricing calculations, duration interpretation, stock valuation using
2026 Focus
DDM
,Section 1: Primary vs. Secondary Financial Markets
1.1 Primary Markets
Q1. A primary market is best defined as a market where:
A) Previously issued securities are traded between investors
B) New securities are sold by the issuer to investors for the first
time
C) Only government bonds are traded
D) Only seasoned equity offerings occur
Answer: B
Rationale: The primary market is where new securities are
issued and sold to the public for the first time. This includes
initial public offerings (IPOs) and new bond issues. The
secondary market is where previously issued securities trade
between investors.
Q2. In a primary market transaction, the proceeds from the sale
of securities go to:
A) The selling investor
B) The issuing corporation
C) The stock exchange
D) The government
,Answer: B
Rationale: In a primary market transaction, the issuing
corporation receives the proceeds from the sale of new
securities. This is how firms raise new capital. In the secondary
market, proceeds go to the selling investor, not the issuing firm.
Q3. An initial public offering (IPO) occurs in which market?
A) Primary market
B) Secondary market
C) Tertiary market
D) Money market
Answer: A
Rationale: An IPO occurs in the primary market, where a
company sells shares to the public for the first time to raise
capital. After the IPO, the shares trade in the secondary market.
Q4. Which of the following is a primary market transaction?
A) An investor selling shares on the NYSE
B) A company issuing new bonds to the public
C) An investor buying shares from another investor on NASDAQ
D) A broker executing a trade for a client on the NYSE
Answer: B
Rationale: A company issuing new bonds to the public is a
primary market transaction because the issuer receives the
proceeds. The other options involve trading of already-issued
, securities between investors, which are secondary market
transactions.
Q5. What is a seasoned equity offering (SEO)?
A) The first sale of stock by a company to the public
B) A subsequent sale of stock by a company that is already
publicly traded
C) The repurchase of shares by a corporation
D) The sale of shares by an investor in the secondary market
Answer: B
Rationale: A seasoned equity offering (SEO) is a subsequent
sale of stock by a company that is already publicly traded. It
occurs in the primary market and allows the firm to raise
additional equity capital.
Q6. Which of the following is NOT a characteristic of a primary
market?
A) Securities are sold by the issuer
B) Proceeds go to the issuing firm
C) Securities are traded between investors
D) New capital is raised
Answer: C
Rationale: Trading of securities between investors is a
characteristic of the secondary market, not the primary market.
(Verified Update)
This comprehensive study guide covers the core domains tested
on FINC 3610 Exam 2: Valuation & Financial Markets at Auburn
University. It includes original practice questions with detailed
rationales, organized by the core exam domains: Primary vs.
Secondary Financial Markets, Bond Structures & Features,
Interest Rate Risk, and Stock Valuation (Preferred vs. Common
Stock) .
Exam Overview & Blueprint:
Parameter Details
Exam
Multiple-choice, true/false, and calculation-based questions
Format
Primary vs. secondary markets, NYSE vs. NASDAQ, bond pricing, yield to maturity, duration, interest rate
Core Topics
risk, dividend discount models, preferred vs. common stock
Key
Bond Price = C × [1 - (1+r)^-t]/r + F/(1+r)^t; Current Yield = C/P; YTM; P₀ = D₁/(r-g); P₀ = D/r (preferred)
Formulas
NGN-style application problems, bond pricing calculations, duration interpretation, stock valuation using
2026 Focus
DDM
,Section 1: Primary vs. Secondary Financial Markets
1.1 Primary Markets
Q1. A primary market is best defined as a market where:
A) Previously issued securities are traded between investors
B) New securities are sold by the issuer to investors for the first
time
C) Only government bonds are traded
D) Only seasoned equity offerings occur
Answer: B
Rationale: The primary market is where new securities are
issued and sold to the public for the first time. This includes
initial public offerings (IPOs) and new bond issues. The
secondary market is where previously issued securities trade
between investors.
Q2. In a primary market transaction, the proceeds from the sale
of securities go to:
A) The selling investor
B) The issuing corporation
C) The stock exchange
D) The government
,Answer: B
Rationale: In a primary market transaction, the issuing
corporation receives the proceeds from the sale of new
securities. This is how firms raise new capital. In the secondary
market, proceeds go to the selling investor, not the issuing firm.
Q3. An initial public offering (IPO) occurs in which market?
A) Primary market
B) Secondary market
C) Tertiary market
D) Money market
Answer: A
Rationale: An IPO occurs in the primary market, where a
company sells shares to the public for the first time to raise
capital. After the IPO, the shares trade in the secondary market.
Q4. Which of the following is a primary market transaction?
A) An investor selling shares on the NYSE
B) A company issuing new bonds to the public
C) An investor buying shares from another investor on NASDAQ
D) A broker executing a trade for a client on the NYSE
Answer: B
Rationale: A company issuing new bonds to the public is a
primary market transaction because the issuer receives the
proceeds. The other options involve trading of already-issued
, securities between investors, which are secondary market
transactions.
Q5. What is a seasoned equity offering (SEO)?
A) The first sale of stock by a company to the public
B) A subsequent sale of stock by a company that is already
publicly traded
C) The repurchase of shares by a corporation
D) The sale of shares by an investor in the secondary market
Answer: B
Rationale: A seasoned equity offering (SEO) is a subsequent
sale of stock by a company that is already publicly traded. It
occurs in the primary market and allows the firm to raise
additional equity capital.
Q6. Which of the following is NOT a characteristic of a primary
market?
A) Securities are sold by the issuer
B) Proceeds go to the issuing firm
C) Securities are traded between investors
D) New capital is raised
Answer: C
Rationale: Trading of securities between investors is a
characteristic of the secondary market, not the primary market.
