FINA 3315 Exam 1 Review UPDATED
ACTUAL Exam Questions and CORRECT
Answers
Stocks are a(n) ________ investment representing ________ of a business. - CORRECT
ANSWER - Direct; Ownership
The government is generally - CORRECT ANSWER - A demander of funds in the
financial market.
Alexandra purchased a stock one year ago at a price of $64 a share. In the past year, she has
received four quarterly dividends of $1.50 each. Today she sold the stock for $76 a share. Her
capital gain per share is - CORRECT ANSWER - $12
A major goal of corporate financial management is to increase the value of the firm to investors.
- CORRECT ANSWER - True
The governmental agency that oversees the capital markets is the - CORRECT ANSWER -
Securities and Exchange Commission.
Stocks purchased in the secondary market are purchased - CORRECT ANSWER - From
other investors.
The great majority of transactions on the NYSE are executed - CORRECT ANSWER -
Automatically through electronic technology.
Which of the following is currently a requirement for a stock to be listed on the NYSE? -
CORRECT ANSWER - Global market capitalization of at least $200 million.
Margin trading will magnify losses on a percentage basis. - CORRECT ANSWER - True
An investor short sells 500 shares of a stock for $35 per share. The initial margin is 52%. How
much equity will be required in the account to complete this transaction? - CORRECT
ANSWER - (500 x $35) x .52 = $9100
Which of these alternatives is NOT an option available to companies offering their stock to the
public for the first time? - CORRECT ANSWER - Prospectors
Certified Financial Planners typically manage institutional portfolios. - CORRECT
ANSWER - False
Which of the following securities represents direct ownership of a business? - CORRECT
ANSWER - Common stock
, The U.S. stock markets tend to produce the highest rate of return each year. - CORRECT
ANSWER - False
Sharnel Bitker expected the price of PharmaScripts shares to drop in the near future in response
to the expected failure of its new drug to pass FDA tests. As a result, she sold short 1,100 shares
of PharmaScripts at $8.37. How much would Sharnel earn or lose on this transaction if she
repurchased the 1,100 shares eight months later at each of the following prices per share?
a. $12.97
b. $8.22
c. $5.16
d. $16.12
e. $11.33 - CORRECT ANSWER - a. ($8.37 - $12.97) x 1,100 = -$5,060
b. ($8.37 - $8.22) x 1,100 = $165
c. ($8.37 - $5.16) x 1,100 = $3,531
d. ($8.37 - $16.12) x 1,100 = -$8,525
e. ($8.37 - $11.33) x 1,100 = -$3,256
Bond interest and stock dividends are different ways of distributing a corporation's earnings to its
owners. - CORRECT ANSWER - False
The greatest risk inherent in highly rated bonds is - CORRECT ANSWER - Loss of
purchasing power due to inflation.
Which one following will lower required rates of return? - CORRECT ANSWER - Lower
rates of inflation
7 years ago, Nick invested $7,000. Today his investment is worth $11,500. The internal rate of
return on this investment is - CORRECT ANSWER - (11500/7000)^(1/7) - 1 = 7.35%
In some markets it may take many months to sell a residential property. This is an example of -
CORRECT ANSWER - Liquidity risk
Given a real rate of interest of 2.6%, an expected inflation premium of 5.6%, and risk premiums
for investments A and B of 3.5% and 4.8% respectively, find the following:
a. The risk-free rate of return,
ACTUAL Exam Questions and CORRECT
Answers
Stocks are a(n) ________ investment representing ________ of a business. - CORRECT
ANSWER - Direct; Ownership
The government is generally - CORRECT ANSWER - A demander of funds in the
financial market.
Alexandra purchased a stock one year ago at a price of $64 a share. In the past year, she has
received four quarterly dividends of $1.50 each. Today she sold the stock for $76 a share. Her
capital gain per share is - CORRECT ANSWER - $12
A major goal of corporate financial management is to increase the value of the firm to investors.
- CORRECT ANSWER - True
The governmental agency that oversees the capital markets is the - CORRECT ANSWER -
Securities and Exchange Commission.
Stocks purchased in the secondary market are purchased - CORRECT ANSWER - From
other investors.
The great majority of transactions on the NYSE are executed - CORRECT ANSWER -
Automatically through electronic technology.
Which of the following is currently a requirement for a stock to be listed on the NYSE? -
CORRECT ANSWER - Global market capitalization of at least $200 million.
Margin trading will magnify losses on a percentage basis. - CORRECT ANSWER - True
An investor short sells 500 shares of a stock for $35 per share. The initial margin is 52%. How
much equity will be required in the account to complete this transaction? - CORRECT
ANSWER - (500 x $35) x .52 = $9100
Which of these alternatives is NOT an option available to companies offering their stock to the
public for the first time? - CORRECT ANSWER - Prospectors
Certified Financial Planners typically manage institutional portfolios. - CORRECT
ANSWER - False
Which of the following securities represents direct ownership of a business? - CORRECT
ANSWER - Common stock
, The U.S. stock markets tend to produce the highest rate of return each year. - CORRECT
ANSWER - False
Sharnel Bitker expected the price of PharmaScripts shares to drop in the near future in response
to the expected failure of its new drug to pass FDA tests. As a result, she sold short 1,100 shares
of PharmaScripts at $8.37. How much would Sharnel earn or lose on this transaction if she
repurchased the 1,100 shares eight months later at each of the following prices per share?
a. $12.97
b. $8.22
c. $5.16
d. $16.12
e. $11.33 - CORRECT ANSWER - a. ($8.37 - $12.97) x 1,100 = -$5,060
b. ($8.37 - $8.22) x 1,100 = $165
c. ($8.37 - $5.16) x 1,100 = $3,531
d. ($8.37 - $16.12) x 1,100 = -$8,525
e. ($8.37 - $11.33) x 1,100 = -$3,256
Bond interest and stock dividends are different ways of distributing a corporation's earnings to its
owners. - CORRECT ANSWER - False
The greatest risk inherent in highly rated bonds is - CORRECT ANSWER - Loss of
purchasing power due to inflation.
Which one following will lower required rates of return? - CORRECT ANSWER - Lower
rates of inflation
7 years ago, Nick invested $7,000. Today his investment is worth $11,500. The internal rate of
return on this investment is - CORRECT ANSWER - (11500/7000)^(1/7) - 1 = 7.35%
In some markets it may take many months to sell a residential property. This is an example of -
CORRECT ANSWER - Liquidity risk
Given a real rate of interest of 2.6%, an expected inflation premium of 5.6%, and risk premiums
for investments A and B of 3.5% and 4.8% respectively, find the following:
a. The risk-free rate of return,
