FINA 3000
EXAM 1 · PRACTICE QUESTIONS & PROBLEMS
FINA 3000
EXAM 1
PRACTICE QUESTIONS & PROBLEMS
Comprehensive Prep
Exam-Style Multiple Choice · Full Worked Solutions
Time Value of Money · Present & Future Value
Annuities & Perpetuities · Effective Rates
Bond Valuation · Risk & Return · Goals of the Firm
CORRECT ANSWERS · STEP-BY-STEP SOLUTIONS
Time Value of Money · Annuities · Bonds · Risk & Return · Firm Goals
,FINA 3000 EXAM 1 | PRACTICE QUESTIONS & PROBLEMS Comprehensive Prep
SECTION 1 — Goals of the Firm & Principles of Finance
1. The primary goal of the financial manager of a publicly traded corporation is generally considered to be:
A. Maximize accounting profit for the current year only
B. Maximize shareholder wealth (stock price / firm value)
C. Maximize total employment
D. Minimize all taxes regardless of value impact
Correct Answer: B
Step-by-Step Explanation:
Shareholder wealth maximization is the standard normative goal in corporate finance.
It focuses on the market value of equity (and more broadly firm value), not short-term accounting profit alone.
Decisions should consider risk, timing of cash flows, and long-run value.
2. Which of the following is a guiding principle of finance?
A. Ignore the time value of money
B. A dollar today is worth more than a dollar in the future (positive interest rates)
C. Higher risk should always be avoided even if return is higher
D. Leverage never affects risk
Correct Answer: B
Step-by-Step Explanation:
Time value of money: money has earning power; delay has an opportunity cost.
Other core principles: risk–return tradeoff, diversification, and the impact of leverage.
3. Three basic forms of business organization include:
A. Only corporations
B. Sole proprietorship, partnership, and corporation
C. Only LLCs and governments
D. Nonprofits only
Correct Answer: B
Step-by-Step Explanation:
Sole proprietorship: one owner, unlimited liability.
Partnership: two or more owners, typically unlimited liability for general partners.
Corporation: separate legal entity; limited liability for shareholders.
4. Limited liability is a characteristic primarily associated with:
A. Sole proprietorships only
B. Corporations (and many LLCs)
C. General partnerships only
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,FINA 3000 EXAM 1 | PRACTICE QUESTIONS & PROBLEMS Comprehensive Prep
D. None of the above
Correct Answer: B
Step-by-Step Explanation:
Corporate shareholders’ losses are limited to their investment in the firm’s stock.
Sole proprietors and general partners typically have unlimited personal liability.
5. Agency problems arise when:
A. Managers always act perfectly in shareholders’ interests
B. Managers’ personal goals conflict with maximizing shareholder wealth
C. There is only one shareholder who is also the manager
D. Interest rates are zero
Correct Answer: B
Step-by-Step Explanation:
Separation of ownership and control can create conflicts (e.g., excessive perks, risk avoidance, empire building).
Governance mechanisms (board, compensation, monitoring) aim to align interests.
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, FINA 3000 EXAM 1 | PRACTICE QUESTIONS & PROBLEMS Comprehensive Prep
SECTION 2 — Time Value of Money: Single Cash Flows
6. You invest $5,000 today at 8% compounded annually. What is the future value in 6 years?
A. $7,934.37
B. $7,400.00
C. $8,000.00
D. $6,800.00
Correct Answer: A
Step-by-Step Explanation:
Formula: FV = PV × (1 + r)^n
Step 1: PV = 5,000; r = 0.08; n = 6.
Step 2: (1.08)^6 = 1.586874 …
Step 3: FV = 5,000 × 1.586874 ≈ $7,934.37.
7. What is the present value of $10,000 to be received in 5 years if the discount rate is 9%?
A. $6,499.31
B. $9,000.00
C. $10,900.00
D. $5,500.00
Correct Answer: A
Step-by-Step Explanation:
Formula: PV = FV / (1 + r)^n
Step 1: FV = 10,000; r = 0.09; n = 5.
Step 2: (1.09)^5 = 1.538624 …
Step 3: PV = 10,.538624 ≈ $6,499.31.
8. An investment grows from $2,000 to $3,200 in 4 years. Approximate annual compound rate of return?
A. 8%
B. 12.5%
C. 15%
D. 10%
Correct Answer: B
Step-by-Step Explanation:
Solve (1 + r)^4 = 3,,000 = 1.6.
1 + r = 1.6^(1/4).
1.6^0.25 ≈ 1.1247 → r ≈ 12.5%.
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EXAM 1 · PRACTICE QUESTIONS & PROBLEMS
FINA 3000
EXAM 1
PRACTICE QUESTIONS & PROBLEMS
Comprehensive Prep
Exam-Style Multiple Choice · Full Worked Solutions
Time Value of Money · Present & Future Value
Annuities & Perpetuities · Effective Rates
Bond Valuation · Risk & Return · Goals of the Firm
CORRECT ANSWERS · STEP-BY-STEP SOLUTIONS
Time Value of Money · Annuities · Bonds · Risk & Return · Firm Goals
,FINA 3000 EXAM 1 | PRACTICE QUESTIONS & PROBLEMS Comprehensive Prep
SECTION 1 — Goals of the Firm & Principles of Finance
1. The primary goal of the financial manager of a publicly traded corporation is generally considered to be:
A. Maximize accounting profit for the current year only
B. Maximize shareholder wealth (stock price / firm value)
C. Maximize total employment
D. Minimize all taxes regardless of value impact
Correct Answer: B
Step-by-Step Explanation:
Shareholder wealth maximization is the standard normative goal in corporate finance.
It focuses on the market value of equity (and more broadly firm value), not short-term accounting profit alone.
Decisions should consider risk, timing of cash flows, and long-run value.
2. Which of the following is a guiding principle of finance?
A. Ignore the time value of money
B. A dollar today is worth more than a dollar in the future (positive interest rates)
C. Higher risk should always be avoided even if return is higher
D. Leverage never affects risk
Correct Answer: B
Step-by-Step Explanation:
Time value of money: money has earning power; delay has an opportunity cost.
Other core principles: risk–return tradeoff, diversification, and the impact of leverage.
3. Three basic forms of business organization include:
A. Only corporations
B. Sole proprietorship, partnership, and corporation
C. Only LLCs and governments
D. Nonprofits only
Correct Answer: B
Step-by-Step Explanation:
Sole proprietorship: one owner, unlimited liability.
Partnership: two or more owners, typically unlimited liability for general partners.
Corporation: separate legal entity; limited liability for shareholders.
4. Limited liability is a characteristic primarily associated with:
A. Sole proprietorships only
B. Corporations (and many LLCs)
C. General partnerships only
Page 2
,FINA 3000 EXAM 1 | PRACTICE QUESTIONS & PROBLEMS Comprehensive Prep
D. None of the above
Correct Answer: B
Step-by-Step Explanation:
Corporate shareholders’ losses are limited to their investment in the firm’s stock.
Sole proprietors and general partners typically have unlimited personal liability.
5. Agency problems arise when:
A. Managers always act perfectly in shareholders’ interests
B. Managers’ personal goals conflict with maximizing shareholder wealth
C. There is only one shareholder who is also the manager
D. Interest rates are zero
Correct Answer: B
Step-by-Step Explanation:
Separation of ownership and control can create conflicts (e.g., excessive perks, risk avoidance, empire building).
Governance mechanisms (board, compensation, monitoring) aim to align interests.
Page 3
, FINA 3000 EXAM 1 | PRACTICE QUESTIONS & PROBLEMS Comprehensive Prep
SECTION 2 — Time Value of Money: Single Cash Flows
6. You invest $5,000 today at 8% compounded annually. What is the future value in 6 years?
A. $7,934.37
B. $7,400.00
C. $8,000.00
D. $6,800.00
Correct Answer: A
Step-by-Step Explanation:
Formula: FV = PV × (1 + r)^n
Step 1: PV = 5,000; r = 0.08; n = 6.
Step 2: (1.08)^6 = 1.586874 …
Step 3: FV = 5,000 × 1.586874 ≈ $7,934.37.
7. What is the present value of $10,000 to be received in 5 years if the discount rate is 9%?
A. $6,499.31
B. $9,000.00
C. $10,900.00
D. $5,500.00
Correct Answer: A
Step-by-Step Explanation:
Formula: PV = FV / (1 + r)^n
Step 1: FV = 10,000; r = 0.09; n = 5.
Step 2: (1.09)^5 = 1.538624 …
Step 3: PV = 10,.538624 ≈ $6,499.31.
8. An investment grows from $2,000 to $3,200 in 4 years. Approximate annual compound rate of return?
A. 8%
B. 12.5%
C. 15%
D. 10%
Correct Answer: B
Step-by-Step Explanation:
Solve (1 + r)^4 = 3,,000 = 1.6.
1 + r = 1.6^(1/4).
1.6^0.25 ≈ 1.1247 → r ≈ 12.5%.
Page 4
