2024/2025 FIN3701 Corporate Finance
Exam Bundle | Latest Exam Questions
with Verified Solutions Prepared for Comprehensive
Exam Preparation August 2025
,Contents
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2 Risk and Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 Agency Problems and Business Structures . . . . . . . . . . . . . . . . . . . . . . 3
4 Firm Decisions and Financial Statements . . . . . . . . . . . . . . . . . . . . . . 3
5 Capital Budgeting and NPV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6 Additional Relevant Questions and Answers . . . . . . . . . . . . . . . . . . . . 5
7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1
, 1 Introduction
This comprehensive exam bundle provides a focused collection of questions and verified so-
lutions for FIN3701 Corporate Finance. The content prioritizes key concepts with straight-
forward questions and answers, minimizing complex terms. Questions cover core topics like
capital budgeting, cost of capital, valuation, capital structure, dividends, and working capital
management. Sourced primarily from Quizlet and supplemented with additional relevant ques-
tions, this bundle includes over 200 Q&A pairs to ensure thorough preparation. The bundle has
been refactored for clarity and expanded with 100 new questions based on standard corporate
finance principles.
2 Risk and Return
Question 1: What defines the variance of an investment’s annual returns over several
years?
Answer: The average squared difference between the actual returns and the arith-
metic average return.
Question 2: What does standard deviation measure?
Answer: Volatility.
Question 3: What is defined by its mean and standard deviation?
Answer: Normal distribution.
Question 4: What is the average compound return earned per year over multiple years
called?
Answer: Geometric average return.
Question 5: What statements are correct about a stock investment?
Answer: The capital gains yield can be positive, negative, or zero, and the total
return equals the sum of dividend yield and capital gains yield.
Question 6: How is the real rate of return on a stock approximately calculated?
Answer: Nominal rate minus the inflation rate.
Question 7: What is correct about volatility and risk premium?
Answer: Greater volatility of returns means greater risk premium.
Question 8: If variability of large-company stock returns increases long-term, what hap-
pens?
Answer: Increase in risk premium and 68% probability range.
Question 9: How do historical arithmetic and geometric averages affect return estimates?
Answer: Arithmetic overestimates long-term, geometric underestimates short-
term.
Question 10: Why might a stock price not react to new information?
Answer: Information is already reflected or not material.
Question 11: What measures systematic risk relative to average risky asset?
Answer: Beta.
Question 12: What is the positively sloped line graphing expected returns against betas?
Answer: Security market line.
2
Exam Bundle | Latest Exam Questions
with Verified Solutions Prepared for Comprehensive
Exam Preparation August 2025
,Contents
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2 Risk and Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 Agency Problems and Business Structures . . . . . . . . . . . . . . . . . . . . . . 3
4 Firm Decisions and Financial Statements . . . . . . . . . . . . . . . . . . . . . . 3
5 Capital Budgeting and NPV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6 Additional Relevant Questions and Answers . . . . . . . . . . . . . . . . . . . . 5
7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1
, 1 Introduction
This comprehensive exam bundle provides a focused collection of questions and verified so-
lutions for FIN3701 Corporate Finance. The content prioritizes key concepts with straight-
forward questions and answers, minimizing complex terms. Questions cover core topics like
capital budgeting, cost of capital, valuation, capital structure, dividends, and working capital
management. Sourced primarily from Quizlet and supplemented with additional relevant ques-
tions, this bundle includes over 200 Q&A pairs to ensure thorough preparation. The bundle has
been refactored for clarity and expanded with 100 new questions based on standard corporate
finance principles.
2 Risk and Return
Question 1: What defines the variance of an investment’s annual returns over several
years?
Answer: The average squared difference between the actual returns and the arith-
metic average return.
Question 2: What does standard deviation measure?
Answer: Volatility.
Question 3: What is defined by its mean and standard deviation?
Answer: Normal distribution.
Question 4: What is the average compound return earned per year over multiple years
called?
Answer: Geometric average return.
Question 5: What statements are correct about a stock investment?
Answer: The capital gains yield can be positive, negative, or zero, and the total
return equals the sum of dividend yield and capital gains yield.
Question 6: How is the real rate of return on a stock approximately calculated?
Answer: Nominal rate minus the inflation rate.
Question 7: What is correct about volatility and risk premium?
Answer: Greater volatility of returns means greater risk premium.
Question 8: If variability of large-company stock returns increases long-term, what hap-
pens?
Answer: Increase in risk premium and 68% probability range.
Question 9: How do historical arithmetic and geometric averages affect return estimates?
Answer: Arithmetic overestimates long-term, geometric underestimates short-
term.
Question 10: Why might a stock price not react to new information?
Answer: Information is already reflected or not material.
Question 11: What measures systematic risk relative to average risky asset?
Answer: Beta.
Question 12: What is the positively sloped line graphing expected returns against betas?
Answer: Security market line.
2
