New Jersey Chartered Financial Analyst
Examination Questions And Correct
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Rationale 2026 Q&A| Instant Download
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1. Which of the following best defines the primary goal of financial
management?
A) Maximizing accounting profits
B) Minimizing risk at all costs
C) Maximizing shareholder wealth
D) Ensuring liquidity above all else
Rationale: The primary goal of financial management is to maximize
shareholder wealth by increasing the firm’s stock price over the long
term.
2. The price-to-earnings (P/E) ratio is calculated as:
A) Market Price per Share ÷ Book Value per Share
B) Market Price per Share ÷ Earnings per Share
C) Earnings per Share ÷ Market Price per Share
D) Net Income ÷ Market Capitalization
Rationale: The P/E ratio shows how much investors are willing to pay
per dollar of earnings, calculated as market price divided by EPS.
3. Which financial statement reports a company’s financial position at a
specific point in time?
A) Income Statement
B) Statement of Cash Flows
C) Statement of Retained Earnings
D) Balance Sheet
, Rationale: The balance sheet provides a snapshot of a company’s
assets, liabilities, and equity at a specific date.
4. An investor expects an asset to have a 12% return. The risk-free rate is
3%, and the beta is 1.5. Using the CAPM, the expected market risk
premium is:
A) 6%
B) 9%
C) 6%
D) 4%
Rationale: Using CAPM: Expected Return = Rf + β × (Rm – Rf). Here,
12% = 3% + 1.5 × (Rm – 3%), solving gives Rm – 3% = 6%.
5. Which type of risk can be eliminated through diversification?
A) Market risk
B) Unsystematic risk
C) Interest rate risk
D) Inflation risk
Rationale: Unsystematic risk is firm-specific and can be reduced
through diversification, unlike systematic risk.
6. Which of the following is a limitation of the dividend discount model
(DDM)?
A) It ignores time value of money
B) It assumes dividends grow at a constant rate
C) It cannot value growth stocks
D) It does not account for risk
Rationale: The DDM assumes a constant growth rate in dividends,
which may not be realistic for all firms.
7. The weighted average cost of capital (WACC) increases when:
A) The firm increases debt while maintaining the same risk profile
B) The firm issues more equity at the same cost
C) The firm retires high-cost debt
D) The firm increases cash reserves
Rationale: Increasing debt increases financial risk, which raises
WACC if risk profile remains constant.
8. Which ratio indicates how efficiently a company uses its assets to
generate sales?
, A) Debt-to-equity ratio
B) Current ratio
C) Asset turnover ratio
D) Price-to-book ratio
Rationale: Asset turnover ratio = Sales ÷ Total Assets, measuring
efficiency in asset utilization.
9. A bond with a face value of $1,000, 5% coupon rate, and 10 years to
maturity is trading at $950. Which statement is correct?
A) The bond is at par
B) The bond is at a discount
C) The bond is at a premium
D) The bond’s yield is lower than the coupon rate
Rationale: When bond price < face value, it trades at a discount. Yield
will be higher than coupon.
10. Which valuation method is most appropriate for a private
company with stable cash flows?
A) Comparables analysis
B) Discounted cash flow (DCF) analysis
C) Dividend discount model
D) Book value approach
Rationale: DCF analysis estimates intrinsic value based on projected
cash flows, suitable for private firms.
11. Which of the following is considered a leading economic
indicator?
A) Unemployment rate
B) Stock market returns
C) CPI
D) GDP growth
Rationale: Leading indicators signal future economic activity; stock
market returns often rise or fall before the economy.
12. What does the beta of a stock measure?
A) Firm-specific risk
B) Systematic risk relative to the market
C) Expected return
D) Dividend payout ratio
Examination Questions And Correct
Answers (Verified Answers) Plus
Rationale 2026 Q&A| Instant Download
1. Which of the following best defines the primary goal of financial
management?
A) Maximizing accounting profits
B) Minimizing risk at all costs
C) Maximizing shareholder wealth
D) Ensuring liquidity above all else
Rationale: The primary goal of financial management is to maximize
shareholder wealth by increasing the firm’s stock price over the long
term.
2. The price-to-earnings (P/E) ratio is calculated as:
A) Market Price per Share ÷ Book Value per Share
B) Market Price per Share ÷ Earnings per Share
C) Earnings per Share ÷ Market Price per Share
D) Net Income ÷ Market Capitalization
Rationale: The P/E ratio shows how much investors are willing to pay
per dollar of earnings, calculated as market price divided by EPS.
3. Which financial statement reports a company’s financial position at a
specific point in time?
A) Income Statement
B) Statement of Cash Flows
C) Statement of Retained Earnings
D) Balance Sheet
, Rationale: The balance sheet provides a snapshot of a company’s
assets, liabilities, and equity at a specific date.
4. An investor expects an asset to have a 12% return. The risk-free rate is
3%, and the beta is 1.5. Using the CAPM, the expected market risk
premium is:
A) 6%
B) 9%
C) 6%
D) 4%
Rationale: Using CAPM: Expected Return = Rf + β × (Rm – Rf). Here,
12% = 3% + 1.5 × (Rm – 3%), solving gives Rm – 3% = 6%.
5. Which type of risk can be eliminated through diversification?
A) Market risk
B) Unsystematic risk
C) Interest rate risk
D) Inflation risk
Rationale: Unsystematic risk is firm-specific and can be reduced
through diversification, unlike systematic risk.
6. Which of the following is a limitation of the dividend discount model
(DDM)?
A) It ignores time value of money
B) It assumes dividends grow at a constant rate
C) It cannot value growth stocks
D) It does not account for risk
Rationale: The DDM assumes a constant growth rate in dividends,
which may not be realistic for all firms.
7. The weighted average cost of capital (WACC) increases when:
A) The firm increases debt while maintaining the same risk profile
B) The firm issues more equity at the same cost
C) The firm retires high-cost debt
D) The firm increases cash reserves
Rationale: Increasing debt increases financial risk, which raises
WACC if risk profile remains constant.
8. Which ratio indicates how efficiently a company uses its assets to
generate sales?
, A) Debt-to-equity ratio
B) Current ratio
C) Asset turnover ratio
D) Price-to-book ratio
Rationale: Asset turnover ratio = Sales ÷ Total Assets, measuring
efficiency in asset utilization.
9. A bond with a face value of $1,000, 5% coupon rate, and 10 years to
maturity is trading at $950. Which statement is correct?
A) The bond is at par
B) The bond is at a discount
C) The bond is at a premium
D) The bond’s yield is lower than the coupon rate
Rationale: When bond price < face value, it trades at a discount. Yield
will be higher than coupon.
10. Which valuation method is most appropriate for a private
company with stable cash flows?
A) Comparables analysis
B) Discounted cash flow (DCF) analysis
C) Dividend discount model
D) Book value approach
Rationale: DCF analysis estimates intrinsic value based on projected
cash flows, suitable for private firms.
11. Which of the following is considered a leading economic
indicator?
A) Unemployment rate
B) Stock market returns
C) CPI
D) GDP growth
Rationale: Leading indicators signal future economic activity; stock
market returns often rise or fall before the economy.
12. What does the beta of a stock measure?
A) Firm-specific risk
B) Systematic risk relative to the market
C) Expected return
D) Dividend payout ratio
