FINA 3315 Practice Midterm Exam 1 Questions with Correct Answers Latest Update
2025/2026
Market return is estimated from the average return on large sample of stocks such as those In
the Standard & Poor's 500 stock composite index - Answers true
Which of the following are true concerning institutional investor? - Answers 1. Institutional
investors are professionals who mange moneu for other people
2. Banks, insurance companies and mutual funds are all instituitonal investors
3. Institutional investors invesr large sums of money
In response to the same external force, the return on one investment may increase while the
return on another investment may decrease. - Answers True
Firms tend to repurchase shares of their outstanding stock when they view the shares as
undervalued. - Answers True
Which of the following will affect the firms future cash flows? - Answers 1. State of the
economy
2. State of the industry
3. New products in the firms pipeline
Companies with strong earnings but limited growth opportunities - Answers generally pay high
dividends.
The required rate of return denotes the minimum rate of return an investor should expect -
Answers True
ABC Company stock currently has a market value equivalent to its intrinsic value. Marco
perceives that ABC Company is increasing its level of risk and therefore Marco increases his
required rate of return on ABC stock. This change in the required rate of return
A) will reduce the intrinsic value of ABC stock to Marco.
B) will increase the intrinsic value of ABC stock to Marco.
C) will change the intrinsic value but the direction of the change cannot be determined.
D) is a signal to Marco that he should buy more ABC Company stock. - Answers will reduce the
intrinsic value of ABC stock to Marco.
The best stock to own when the stock market is at peak and is expected to decline in value is
one with beta of - Answers -1.0
, The financial crisis of 2008 resulted in - Answers 1. New regulations
2. A sharp reduction in the number of initial public offerings
Which one of the following is a major advantage of margins trading? - Answers Increase in
potential profits on a percentage basis
When a company offers the investing public a certain number of shares of its stock at a certain
price, the company is making what is know as a - Answers Public offering
To compute the present value of $1,000 annuity received at the end of each of the next 3 years
and discounted at the rate of 5% per year, you should use which of the following excel
commands? - Answers PV
Which of the following is not weighting scheme commonly used in creating equity market
indexes? - Answers Industry-weighted
For which one of the following situations will the dividend- growth models work especially well?
- Answers Mature firms with a policy of increasing its earnings and dividends at an average rate
of 5% per year
Advantages of using American depositary receipts to participate in foreign markets - Answers 1.
Lower transactions costs than for direct foreign stock purchases
2. Reduce exposure to foreign exchange risk
3. Dividends are paid in US dollars
Which one of the following is most likely to increase the price of a stock? - Answers Rapid
growth in earnings
The capital asset pricing model (CAPM) is a mathematical model that depicts the - Answers
Positive relationships between risk and return
A holding period return is calculated by adding the current income to the capital gains and
dividing this sum by the - Answers Beginning investment value
Which one of the following statements about common stock returns is true? - Answers Over the
last 5 decades, stock market returns have averaged between 10% and 12%
An exchange trade fund that invest in the stocks of large corporations is an example of -
Answers Indirect investment
Investors seeking to invest their wealth as quickly as possible would invest in - Answers Smaller
companies pursuing rapid growth
Heather believes that by carefully examining a company's fundamentals and by applying the
2025/2026
Market return is estimated from the average return on large sample of stocks such as those In
the Standard & Poor's 500 stock composite index - Answers true
Which of the following are true concerning institutional investor? - Answers 1. Institutional
investors are professionals who mange moneu for other people
2. Banks, insurance companies and mutual funds are all instituitonal investors
3. Institutional investors invesr large sums of money
In response to the same external force, the return on one investment may increase while the
return on another investment may decrease. - Answers True
Firms tend to repurchase shares of their outstanding stock when they view the shares as
undervalued. - Answers True
Which of the following will affect the firms future cash flows? - Answers 1. State of the
economy
2. State of the industry
3. New products in the firms pipeline
Companies with strong earnings but limited growth opportunities - Answers generally pay high
dividends.
The required rate of return denotes the minimum rate of return an investor should expect -
Answers True
ABC Company stock currently has a market value equivalent to its intrinsic value. Marco
perceives that ABC Company is increasing its level of risk and therefore Marco increases his
required rate of return on ABC stock. This change in the required rate of return
A) will reduce the intrinsic value of ABC stock to Marco.
B) will increase the intrinsic value of ABC stock to Marco.
C) will change the intrinsic value but the direction of the change cannot be determined.
D) is a signal to Marco that he should buy more ABC Company stock. - Answers will reduce the
intrinsic value of ABC stock to Marco.
The best stock to own when the stock market is at peak and is expected to decline in value is
one with beta of - Answers -1.0
, The financial crisis of 2008 resulted in - Answers 1. New regulations
2. A sharp reduction in the number of initial public offerings
Which one of the following is a major advantage of margins trading? - Answers Increase in
potential profits on a percentage basis
When a company offers the investing public a certain number of shares of its stock at a certain
price, the company is making what is know as a - Answers Public offering
To compute the present value of $1,000 annuity received at the end of each of the next 3 years
and discounted at the rate of 5% per year, you should use which of the following excel
commands? - Answers PV
Which of the following is not weighting scheme commonly used in creating equity market
indexes? - Answers Industry-weighted
For which one of the following situations will the dividend- growth models work especially well?
- Answers Mature firms with a policy of increasing its earnings and dividends at an average rate
of 5% per year
Advantages of using American depositary receipts to participate in foreign markets - Answers 1.
Lower transactions costs than for direct foreign stock purchases
2. Reduce exposure to foreign exchange risk
3. Dividends are paid in US dollars
Which one of the following is most likely to increase the price of a stock? - Answers Rapid
growth in earnings
The capital asset pricing model (CAPM) is a mathematical model that depicts the - Answers
Positive relationships between risk and return
A holding period return is calculated by adding the current income to the capital gains and
dividing this sum by the - Answers Beginning investment value
Which one of the following statements about common stock returns is true? - Answers Over the
last 5 decades, stock market returns have averaged between 10% and 12%
An exchange trade fund that invest in the stocks of large corporations is an example of -
Answers Indirect investment
Investors seeking to invest their wealth as quickly as possible would invest in - Answers Smaller
companies pursuing rapid growth
Heather believes that by carefully examining a company's fundamentals and by applying the
