FIN 325 Investment Analysis Exam
Practice Questions And Correct Answers
(Verified Answers) Plus Rationales 2027
Q&A | Instant Download Pdf
Question 1
Which of the following best describes the primary objective of investment
analysis?
A. Eliminating all investment risk
B. Maximizing taxes paid by investors
C. Evaluating risk and return to make informed investment decisions
D. Guaranteeing a positive investment return
Answer: C. Evaluating risk and return to make informed investment
decisions
Rationale: Investment analysis focuses on assessing expected returns,
risks, valuation, and other relevant factors to support sound investment
,decisions. No legitimate investment analysis can eliminate risk or
guarantee returns.
Question 2
Which type of investment represents ownership in a corporation?
A. Bond
B. Common stock
C. Treasury bill
D. Certificate of deposit
Answer: B. Common stock
Rationale: Common stock represents an ownership interest in a
corporation and generally provides voting rights and a residual claim on
corporate assets and earnings.
Question 3
What is the systematic risk of an investment?
A. Risk unique to a particular company
B. Risk that can always be eliminated through diversification
C. Market-related risk that cannot be eliminated through diversification
D. Risk caused only by accounting errors
,Answer: C. Market-related risk that cannot be eliminated through
diversification
Rationale: Systematic risk affects the overall market and includes factors
such as recessions, inflation, and interest-rate changes. Diversification
primarily reduces unsystematic risk.
Question 4
Which measure is most commonly used to quantify systematic risk?
A. Alpha
B. Beta
C. Standard deviation
D. Variance
Answer: B. Beta
Rationale: Beta measures an asset's sensitivity to movements in the overall
market and is therefore a primary measure of systematic risk.
Question 5
A stock with a beta of 1.5 is generally expected to:
A. Move 1.5% when the market moves 1% in the opposite direction
B. Be 50% less volatile than the market
C. Move approximately 1.5% for a 1% market movement in the same
, direction
D. Have no systematic risk
Answer: C. Move approximately 1.5% for a 1% market movement in the
same direction
Rationale: A beta of 1.5 indicates that the stock has approximately 1.5
times the market's sensitivity to systematic movements.
Question 6
Which investment generally has the highest claim priority if a company is
liquidated?
A. Common stock
B. Preferred stock
C. Secured debt
D. Retained earnings
Answer: C. Secured debt
Rationale: Secured creditors have claims backed by specific collateral and
generally have priority over unsecured creditors and equity holders during
liquidation.
Question 7
The expected return of a portfolio is calculated as:
Practice Questions And Correct Answers
(Verified Answers) Plus Rationales 2027
Q&A | Instant Download Pdf
Question 1
Which of the following best describes the primary objective of investment
analysis?
A. Eliminating all investment risk
B. Maximizing taxes paid by investors
C. Evaluating risk and return to make informed investment decisions
D. Guaranteeing a positive investment return
Answer: C. Evaluating risk and return to make informed investment
decisions
Rationale: Investment analysis focuses on assessing expected returns,
risks, valuation, and other relevant factors to support sound investment
,decisions. No legitimate investment analysis can eliminate risk or
guarantee returns.
Question 2
Which type of investment represents ownership in a corporation?
A. Bond
B. Common stock
C. Treasury bill
D. Certificate of deposit
Answer: B. Common stock
Rationale: Common stock represents an ownership interest in a
corporation and generally provides voting rights and a residual claim on
corporate assets and earnings.
Question 3
What is the systematic risk of an investment?
A. Risk unique to a particular company
B. Risk that can always be eliminated through diversification
C. Market-related risk that cannot be eliminated through diversification
D. Risk caused only by accounting errors
,Answer: C. Market-related risk that cannot be eliminated through
diversification
Rationale: Systematic risk affects the overall market and includes factors
such as recessions, inflation, and interest-rate changes. Diversification
primarily reduces unsystematic risk.
Question 4
Which measure is most commonly used to quantify systematic risk?
A. Alpha
B. Beta
C. Standard deviation
D. Variance
Answer: B. Beta
Rationale: Beta measures an asset's sensitivity to movements in the overall
market and is therefore a primary measure of systematic risk.
Question 5
A stock with a beta of 1.5 is generally expected to:
A. Move 1.5% when the market moves 1% in the opposite direction
B. Be 50% less volatile than the market
C. Move approximately 1.5% for a 1% market movement in the same
, direction
D. Have no systematic risk
Answer: C. Move approximately 1.5% for a 1% market movement in the
same direction
Rationale: A beta of 1.5 indicates that the stock has approximately 1.5
times the market's sensitivity to systematic movements.
Question 6
Which investment generally has the highest claim priority if a company is
liquidated?
A. Common stock
B. Preferred stock
C. Secured debt
D. Retained earnings
Answer: C. Secured debt
Rationale: Secured creditors have claims backed by specific collateral and
generally have priority over unsecured creditors and equity holders during
liquidation.
Question 7
The expected return of a portfolio is calculated as:
