FNAN 320 FINAL EXAM QUESTIONS WITH VERIFIED
ANSWERS
When different investment rules give conflicting answers, then decisions should be
based on the Net Present Value rule, as it is the most reliable and accurate decision
rule. - Answers - True
If you build a large enough portfolio, you can diversify away all the risks of a portfolio. -
Answers - False
When there are large numbers of people looking to save their money and there is little
demand for loans, one would expect interest rates to be high. - Answers - False
A portfolio of stocks can achieve diversification benefits if the stocks that comprise the
portfolio are - Answers - not perfectly correlated.
How do the shareholders of most corporations exercise their control of that corporation?
- Answers - by electing members of a board of directors
Whose interests should a financial manager consider paramount when making a
decision? - Answers - the stockholders who have risked their money to become owners
of the company
Diversification reduces the risk of a portfolio because ________ and some of the risks
are averaged out of the portfolio. - Answers - stocks do not move identically
Prior to its maturity date, the price of a zero-coupon bond is its face value. (True or
False) - Answers - False
A levered firm is one that has ________ outstanding. - Answers - debt
Firms that have many divisions with different lines of business do not use a company-
wide WACC to evaluate projects - Answers - True
What is the ultimate goal of the capital budgeting process? - Answers - to determine the
effect of the decision to accept or reject a project on the firm's cash flows
Which of the following need be true for an asset to be considered liquid? - Answers - It
can be easily bought and sold and the selling price is very close to the buying price at a
given point in time.
ANSWERS
When different investment rules give conflicting answers, then decisions should be
based on the Net Present Value rule, as it is the most reliable and accurate decision
rule. - Answers - True
If you build a large enough portfolio, you can diversify away all the risks of a portfolio. -
Answers - False
When there are large numbers of people looking to save their money and there is little
demand for loans, one would expect interest rates to be high. - Answers - False
A portfolio of stocks can achieve diversification benefits if the stocks that comprise the
portfolio are - Answers - not perfectly correlated.
How do the shareholders of most corporations exercise their control of that corporation?
- Answers - by electing members of a board of directors
Whose interests should a financial manager consider paramount when making a
decision? - Answers - the stockholders who have risked their money to become owners
of the company
Diversification reduces the risk of a portfolio because ________ and some of the risks
are averaged out of the portfolio. - Answers - stocks do not move identically
Prior to its maturity date, the price of a zero-coupon bond is its face value. (True or
False) - Answers - False
A levered firm is one that has ________ outstanding. - Answers - debt
Firms that have many divisions with different lines of business do not use a company-
wide WACC to evaluate projects - Answers - True
What is the ultimate goal of the capital budgeting process? - Answers - to determine the
effect of the decision to accept or reject a project on the firm's cash flows
Which of the following need be true for an asset to be considered liquid? - Answers - It
can be easily bought and sold and the selling price is very close to the buying price at a
given point in time.
