FIN 310 Exam UPDATED ACTUAL Exam
Questions and CORRECT Answers
Which of the following statements is TRUE?
When yields increase, bonds with shorter maturities tend to decrease in value more than bonds
with longer maturities.
Over time, if yields do not change, the values of premium bonds decrease toward par smoothly.
A "call provision" allows the bond holder the option to determine when they want the company
to buy back the bond.
Treasury Bonds are pure discount loans sold by the US government as a means to borrow money
for less than one year. - CORRECT ANSWER -B
Which of the following statements is FALSE?
The Gordon Growth Model assumes constant dividend growth and implies that stock prices grow
at the same rate.
A stock's price is the present value of the expected dividends and capital gains.
Dealers buy and sell securities from their own inventory, while brokers bring buyers and sellers
together to complete transactions.
Holders of preferred stock have greater voting rights in corporate decisions than holders of
common stock. - CORRECT ANSWER -D
Newly issued securities are sold to investors in which one of the following markets?
,Proxy
Inside
Proxy Inside Secondary Primary - CORRECT ANSWER -D
Which of the following statements is FALSE?
A. One reason why the Average Accounting Return is a flawed measure in making business
decisions is that it is based on cash flows.
B. IRR measures the dollar-weighted return on an investment.
C. In order to use the Payback Rule as a tool to determine if an investment is acceptable, a
manager needs to provide a pre-specified limit of time for recouping investment costs.
D. The Profitability Index measures the value created per dollar invested, based on the time value
of money. - CORRECT ANSWER - A.
If any, which of the following statements is FALSE?
NPV measures the value created by taking on an investment
NPV indicates how much a project will improve owner wealth
NPV is the discounted present value of a project's expected future accounting net income at the
required return, subtracting the initial investment
None of the above statements is false - CORRECT ANSWER -C
, Which of the following statements is TRUE?
Opportunity costs are those values that have already been incurred, cannot be recouped, and
should not be considered in an investment decision.
Under hard capital rationing, a business enforces limits on investment budgets because it prefers
not to raise financing from the capital markets.
Managerial real options can be very valuable but difficult to measure, and ignoring them will
underestimate a project's true Net Present Value.
Forecasting risk is more troublesome when NPV estimates are particularly large. - CORRECT
ANSWER -C
Which of the following statements is FALSE?
Over the long run, investments in small-company stocks have had the largest return but also the
most risk, when compared with large-company stocks, bonds, and T-Bills.
The average return is always less than the geometric return.
Investors who hold bonds instead of stocks over long horizons can be rational and relatively
averse to risk.
Unlike the capital gains yield, the dividend yield can never be negative. - CORRECT
ANSWER -B
Which of the following statements is TRUE?
Efficient markets will protect investors from wrong choices if they do not diversify.
Questions and CORRECT Answers
Which of the following statements is TRUE?
When yields increase, bonds with shorter maturities tend to decrease in value more than bonds
with longer maturities.
Over time, if yields do not change, the values of premium bonds decrease toward par smoothly.
A "call provision" allows the bond holder the option to determine when they want the company
to buy back the bond.
Treasury Bonds are pure discount loans sold by the US government as a means to borrow money
for less than one year. - CORRECT ANSWER -B
Which of the following statements is FALSE?
The Gordon Growth Model assumes constant dividend growth and implies that stock prices grow
at the same rate.
A stock's price is the present value of the expected dividends and capital gains.
Dealers buy and sell securities from their own inventory, while brokers bring buyers and sellers
together to complete transactions.
Holders of preferred stock have greater voting rights in corporate decisions than holders of
common stock. - CORRECT ANSWER -D
Newly issued securities are sold to investors in which one of the following markets?
,Proxy
Inside
Proxy Inside Secondary Primary - CORRECT ANSWER -D
Which of the following statements is FALSE?
A. One reason why the Average Accounting Return is a flawed measure in making business
decisions is that it is based on cash flows.
B. IRR measures the dollar-weighted return on an investment.
C. In order to use the Payback Rule as a tool to determine if an investment is acceptable, a
manager needs to provide a pre-specified limit of time for recouping investment costs.
D. The Profitability Index measures the value created per dollar invested, based on the time value
of money. - CORRECT ANSWER - A.
If any, which of the following statements is FALSE?
NPV measures the value created by taking on an investment
NPV indicates how much a project will improve owner wealth
NPV is the discounted present value of a project's expected future accounting net income at the
required return, subtracting the initial investment
None of the above statements is false - CORRECT ANSWER -C
, Which of the following statements is TRUE?
Opportunity costs are those values that have already been incurred, cannot be recouped, and
should not be considered in an investment decision.
Under hard capital rationing, a business enforces limits on investment budgets because it prefers
not to raise financing from the capital markets.
Managerial real options can be very valuable but difficult to measure, and ignoring them will
underestimate a project's true Net Present Value.
Forecasting risk is more troublesome when NPV estimates are particularly large. - CORRECT
ANSWER -C
Which of the following statements is FALSE?
Over the long run, investments in small-company stocks have had the largest return but also the
most risk, when compared with large-company stocks, bonds, and T-Bills.
The average return is always less than the geometric return.
Investors who hold bonds instead of stocks over long horizons can be rational and relatively
averse to risk.
Unlike the capital gains yield, the dividend yield can never be negative. - CORRECT
ANSWER -B
Which of the following statements is TRUE?
Efficient markets will protect investors from wrong choices if they do not diversify.
