FIN 301 Exam #2 (PSU) Midterm
Questions With All Solved Solutions.
Which of the following is a primary disadvantage to investing in a hedge fund? - Answer
illiquidity
Which of the following is true concerning the difference between simple and compound
interest? - Answer with simple interest, the assumption is that interest earned on the original
investment is not reinvested. With compound interest, interest is reinvested.
Mr.Wonderful needs $2,500,000 upon retirement in 10 years to live comfortably. He can invest
$125,000 a year to his retirement. What interest rate would his investment need to earn in
order for him to meet his goals? - Answer 14.7%
Suppose your investment returns are taxed at a 25% rate. If you invest $10,000 today and
expect to earn a rate of return of 7%, what will your investment be worth in 10 years? - Answer
$16,680
What interest rate would you have to earn if you wanted to double an investment in 10 years? -
Answer 7.2%
According to the financial life cycle, which of the following is the first source of capital for a
business? - Answer Owner's Capital
What is the following is true about the Dow Jones Industrial Average (DJIA)? - Answer The DIJA
weights stocks by their market price.
Which of the following transactions would take place in the primary securities market? - Answer
An investor buys an IPO stock through an investment bank.
Robert and Rosie both invested $7,500 5 years ago. They both earned a 15% return, however
Robert earned a simple return of 15% and Rosie earned a compounded return of 15%. How did
this difference in compounding affect their investments' value today? - Answer Rosie will have
$1,960 more than Robert.
,Which of the following is TRUE regarding financial institutions? - Answer The primary revenues
sources for insurance companies are insurance premiums and the income from investments
that insurance companies earn by investing this premium income.
Which of the following is TRUE regarding investment intermediaries? - Answer The risk
associated with bond funds generally falls between the risks associated with stock and money
market funds.
Which of the following actions is illegal insider trading? - Answer Employees buy stock in their
company after the CEO tells them non-public information.
Which of the following statements about financial institutions is true? - Answer The three
general types of mutual funds include money market funds, bond funds, and stock funds.
If you plan to save $10,000 every year for retirement for 20 years. Assuming that you earn an
7.5% return on your investment, compounded annually, how much money will you have when
you retire? - Answer $433,047
What is true about the designated market maker? - Answer The primary role of the designated
market maker is to hold inventory and to buy and sell shares
Which of the following is true about Initial Public Offerings (IPOs)? - Answer The long-term
adjusted performance of IPOs is negative
If an investment's interest is compounded semi-annually rather than annually, what will be the
result on the interest earned from the investment? - Answer The semi-annual compounding
investment will earn more interest because interest will be earned on previous interest
payments more often
Which of the following is a factor that promotes well-functioning financial markets? - Answer
Borrowers and investors are held accountable.
Which of the following is TRUE about Venture Capital Financing? - Answer IPOs backed by
Venture Capital have higher long-term returns
, Bob has a goal to buy a $1.5 million beach house in 10 years. If he expects to make a 9% annual
return, how much does he need to invest today to buy his beach house in 10 years? - Answer
$633,616.21
Which of the following is true regarding the stock and debt markets? - Answer Investors
seeking higher returns invest in stocks
Which will be worth more in 20 years:
$150 invested today at a rate of 9%
$12 invested every year at a rate of 12% - Answer The $12 invested every year will be worth
$23.97 more in 15 years
What is your ending balance using compound interest of an investment of $1,550 with an
interest rate of 8.0% after 20 years? - Answer $7,224.48
You plan to invest $20,000 today and expect to earn 9% per year. How much money will you
have at age 65 if you are now 43? (rounded to the nearest number) - Answer $133,172
True or False: A venture capital firm would invest in a company in the early stages if it knew its
return would be 10% when it exited the investment once it IPOs in 10 years. - Answer False
_________ funding occurs when mature company's are funding major expansion projects or
new product developments - Answer Late Stage
What is the average first day return on IPO's? - Answer 15%
Which was a successful IPO? - Answer Google
When would corporate executives not be allowed to trade on their own stock? - Answer Right
before earnings announcements.
_________ funding occurs with maturing companies where an merger, IPO, or leveraged buyout
is a viable option. - Answer Second Round
Questions With All Solved Solutions.
Which of the following is a primary disadvantage to investing in a hedge fund? - Answer
illiquidity
Which of the following is true concerning the difference between simple and compound
interest? - Answer with simple interest, the assumption is that interest earned on the original
investment is not reinvested. With compound interest, interest is reinvested.
Mr.Wonderful needs $2,500,000 upon retirement in 10 years to live comfortably. He can invest
$125,000 a year to his retirement. What interest rate would his investment need to earn in
order for him to meet his goals? - Answer 14.7%
Suppose your investment returns are taxed at a 25% rate. If you invest $10,000 today and
expect to earn a rate of return of 7%, what will your investment be worth in 10 years? - Answer
$16,680
What interest rate would you have to earn if you wanted to double an investment in 10 years? -
Answer 7.2%
According to the financial life cycle, which of the following is the first source of capital for a
business? - Answer Owner's Capital
What is the following is true about the Dow Jones Industrial Average (DJIA)? - Answer The DIJA
weights stocks by their market price.
Which of the following transactions would take place in the primary securities market? - Answer
An investor buys an IPO stock through an investment bank.
Robert and Rosie both invested $7,500 5 years ago. They both earned a 15% return, however
Robert earned a simple return of 15% and Rosie earned a compounded return of 15%. How did
this difference in compounding affect their investments' value today? - Answer Rosie will have
$1,960 more than Robert.
,Which of the following is TRUE regarding financial institutions? - Answer The primary revenues
sources for insurance companies are insurance premiums and the income from investments
that insurance companies earn by investing this premium income.
Which of the following is TRUE regarding investment intermediaries? - Answer The risk
associated with bond funds generally falls between the risks associated with stock and money
market funds.
Which of the following actions is illegal insider trading? - Answer Employees buy stock in their
company after the CEO tells them non-public information.
Which of the following statements about financial institutions is true? - Answer The three
general types of mutual funds include money market funds, bond funds, and stock funds.
If you plan to save $10,000 every year for retirement for 20 years. Assuming that you earn an
7.5% return on your investment, compounded annually, how much money will you have when
you retire? - Answer $433,047
What is true about the designated market maker? - Answer The primary role of the designated
market maker is to hold inventory and to buy and sell shares
Which of the following is true about Initial Public Offerings (IPOs)? - Answer The long-term
adjusted performance of IPOs is negative
If an investment's interest is compounded semi-annually rather than annually, what will be the
result on the interest earned from the investment? - Answer The semi-annual compounding
investment will earn more interest because interest will be earned on previous interest
payments more often
Which of the following is a factor that promotes well-functioning financial markets? - Answer
Borrowers and investors are held accountable.
Which of the following is TRUE about Venture Capital Financing? - Answer IPOs backed by
Venture Capital have higher long-term returns
, Bob has a goal to buy a $1.5 million beach house in 10 years. If he expects to make a 9% annual
return, how much does he need to invest today to buy his beach house in 10 years? - Answer
$633,616.21
Which of the following is true regarding the stock and debt markets? - Answer Investors
seeking higher returns invest in stocks
Which will be worth more in 20 years:
$150 invested today at a rate of 9%
$12 invested every year at a rate of 12% - Answer The $12 invested every year will be worth
$23.97 more in 15 years
What is your ending balance using compound interest of an investment of $1,550 with an
interest rate of 8.0% after 20 years? - Answer $7,224.48
You plan to invest $20,000 today and expect to earn 9% per year. How much money will you
have at age 65 if you are now 43? (rounded to the nearest number) - Answer $133,172
True or False: A venture capital firm would invest in a company in the early stages if it knew its
return would be 10% when it exited the investment once it IPOs in 10 years. - Answer False
_________ funding occurs when mature company's are funding major expansion projects or
new product developments - Answer Late Stage
What is the average first day return on IPO's? - Answer 15%
Which was a successful IPO? - Answer Google
When would corporate executives not be allowed to trade on their own stock? - Answer Right
before earnings announcements.
_________ funding occurs with maturing companies where an merger, IPO, or leveraged buyout
is a viable option. - Answer Second Round
