FINC 3610 Final Exam 2026 | All Questions and
Correct Answers | Graded A+ | Verified
Answers | Brand New Version
Q: How does a margin loan work? ---------CORRECT ANSWER-----------------You
borrow money from your broker to buy stock using your existing securities as
collateral; you pay interest on the loan.
Q: What can happen if the value of stock drops with a margin loan? ---------
CORRECT ANSWER-----------------Your equity falls, you may receive a margin call,
and the broker can force-sell holdings.
Q: What can happen if the value of stock rises with a margin loan? ---------
CORRECT ANSWER-----------------Your return on equity is amplified; leverage
increases gains.
Q: Major risk of buying stock with a margin loan? ---------CORRECT ANSWER---------
--------Losses are magnified and can exceed your cash investment; margin calls
possible.
Q: Active vs Passive investing? ---------CORRECT ANSWER-----------------Active tries
to beat the market; passive tracks an index at low cost.
,Q: Argument for Passive Investing? ---------CORRECT ANSWER-----------------Lower
fees and difficulty of beating the market.
Q: Argument for Active Investing? ---------CORRECT ANSWER-----------------Potential
to outperform by exploiting mispricing.
Q: Percent of active funds that beat passive long-term? ---------CORRECT ANSWER-
----------------A small minority—usually well under 50%.
Q: Textbook definition of valuing stocks? ---------CORRECT ANSWER-----------------
Present value of expected future cash flows.
Q: Two main stock cash flows? ---------CORRECT ANSWER-----------------Dividends
and future sale price.
Q: Why stock pricing harder than bonds? ---------CORRECT ANSWER-----------------
Stock cash flows and growth are uncertain, no fixed maturity.
, Q: Estimate dividend growth rate? ---------CORRECT ANSWER-----------------
Historical growth, analyst forecasts, or g = ROE × retention ratio.
Q: Formula for stock with growing dividends? ---------CORRECT ANSWER--------------
---Gordon model: P0 = D1 / (r − g).
Q: DDM is same as what? ---------CORRECT ANSWER-----------------Gordon Growth
Model.
Q: Value no-growth dividend stock? ---------CORRECT ANSWER-----------------P0 = D
/ r.
Q: Value constant-growth dividend stock? ---------CORRECT ANSWER-----------------
P0 = D1 / (r − g).
Q: Explain required return to 8th grader? ---------CORRECT ANSWER-----------------
It's the minimum percent return for taking investment risk.
Q: Value a stock using P/E? ---------CORRECT ANSWER-----------------Price = EPS ×
P/E.
Correct Answers | Graded A+ | Verified
Answers | Brand New Version
Q: How does a margin loan work? ---------CORRECT ANSWER-----------------You
borrow money from your broker to buy stock using your existing securities as
collateral; you pay interest on the loan.
Q: What can happen if the value of stock drops with a margin loan? ---------
CORRECT ANSWER-----------------Your equity falls, you may receive a margin call,
and the broker can force-sell holdings.
Q: What can happen if the value of stock rises with a margin loan? ---------
CORRECT ANSWER-----------------Your return on equity is amplified; leverage
increases gains.
Q: Major risk of buying stock with a margin loan? ---------CORRECT ANSWER---------
--------Losses are magnified and can exceed your cash investment; margin calls
possible.
Q: Active vs Passive investing? ---------CORRECT ANSWER-----------------Active tries
to beat the market; passive tracks an index at low cost.
,Q: Argument for Passive Investing? ---------CORRECT ANSWER-----------------Lower
fees and difficulty of beating the market.
Q: Argument for Active Investing? ---------CORRECT ANSWER-----------------Potential
to outperform by exploiting mispricing.
Q: Percent of active funds that beat passive long-term? ---------CORRECT ANSWER-
----------------A small minority—usually well under 50%.
Q: Textbook definition of valuing stocks? ---------CORRECT ANSWER-----------------
Present value of expected future cash flows.
Q: Two main stock cash flows? ---------CORRECT ANSWER-----------------Dividends
and future sale price.
Q: Why stock pricing harder than bonds? ---------CORRECT ANSWER-----------------
Stock cash flows and growth are uncertain, no fixed maturity.
, Q: Estimate dividend growth rate? ---------CORRECT ANSWER-----------------
Historical growth, analyst forecasts, or g = ROE × retention ratio.
Q: Formula for stock with growing dividends? ---------CORRECT ANSWER--------------
---Gordon model: P0 = D1 / (r − g).
Q: DDM is same as what? ---------CORRECT ANSWER-----------------Gordon Growth
Model.
Q: Value no-growth dividend stock? ---------CORRECT ANSWER-----------------P0 = D
/ r.
Q: Value constant-growth dividend stock? ---------CORRECT ANSWER-----------------
P0 = D1 / (r − g).
Q: Explain required return to 8th grader? ---------CORRECT ANSWER-----------------
It's the minimum percent return for taking investment risk.
Q: Value a stock using P/E? ---------CORRECT ANSWER-----------------Price = EPS ×
P/E.
