BU.920.604
Finance
LATEST EXAM READINESS
GUIDE
Q&S
©2024/2025
,1. Multiple Choice: What is the primary goal of financial
management?
a) Maximize current dividends per share
b) Maximize market share
c) Minimize operational costs
d) Maximize shareholder wealth
Correct Answer: d) Maximize shareholder wealth
Rationale: The primary goal is to maximize shareholder
wealth, as it reflects the overall value of the company in the
long term.
2. Fill-in-the-Blank: The __________ model is used to
determine the discount rate for an uncertain cash flow.
Correct Answer: Capital Asset Pricing Model (CAPM)
Rationale: CAPM is used to calculate the required return
on equity or the cost of equity.
3. True/False: The Efficient Market Hypothesis implies that
all stocks are priced accurately and reflect all available
information.
Correct Answer: True
Rationale: The Efficient Market Hypothesis posits that
stocks always trade at their fair value, making it impossible
for investors to either purchase undervalued stocks or sell
stocks for inflated prices.
4. Multiple Response: Which of the following are considered
derivative instruments?
a) Options
b) Bonds
c) Futures
©2024/2025
, d) Stocks
Correct Answers: a) Options, c) Futures
Rationale: Options and futures are financial derivatives
because their value is derived from the value of an
underlying asset.
5. Multiple Choice: In the context of portfolio theory,
diversification is most effective when security returns are:
a) Positively correlated
b) Negatively correlated
c) Uncorrelated
d) Highly volatile
Correct Answer: b) Negatively correlated
Rationale: Diversification reduces risk most effectively
when security returns are negatively correlated, as the poor
performance of one security is offset by the good
performance of another.
6. Fill-in-the-Blank: The __________ is a measure of a
stock's volatility in relation to the overall market.
Correct Answer: Beta
Rationale: Beta is a measure of the volatility, or
systematic risk, of a security or portfolio in comparison to
the market as a whole.
7. True/False: A higher debt-to-equity ratio generally
indicates a lower risk for investors.
Correct Answer: False
Rationale: A higher debt-to-equity ratio indicates higher
leverage and typically signifies higher risk for investors as
the company has more debt relative to its equity.
8. Multiple Response: Which of the following factors affect
©2024/2025
Finance
LATEST EXAM READINESS
GUIDE
Q&S
©2024/2025
,1. Multiple Choice: What is the primary goal of financial
management?
a) Maximize current dividends per share
b) Maximize market share
c) Minimize operational costs
d) Maximize shareholder wealth
Correct Answer: d) Maximize shareholder wealth
Rationale: The primary goal is to maximize shareholder
wealth, as it reflects the overall value of the company in the
long term.
2. Fill-in-the-Blank: The __________ model is used to
determine the discount rate for an uncertain cash flow.
Correct Answer: Capital Asset Pricing Model (CAPM)
Rationale: CAPM is used to calculate the required return
on equity or the cost of equity.
3. True/False: The Efficient Market Hypothesis implies that
all stocks are priced accurately and reflect all available
information.
Correct Answer: True
Rationale: The Efficient Market Hypothesis posits that
stocks always trade at their fair value, making it impossible
for investors to either purchase undervalued stocks or sell
stocks for inflated prices.
4. Multiple Response: Which of the following are considered
derivative instruments?
a) Options
b) Bonds
c) Futures
©2024/2025
, d) Stocks
Correct Answers: a) Options, c) Futures
Rationale: Options and futures are financial derivatives
because their value is derived from the value of an
underlying asset.
5. Multiple Choice: In the context of portfolio theory,
diversification is most effective when security returns are:
a) Positively correlated
b) Negatively correlated
c) Uncorrelated
d) Highly volatile
Correct Answer: b) Negatively correlated
Rationale: Diversification reduces risk most effectively
when security returns are negatively correlated, as the poor
performance of one security is offset by the good
performance of another.
6. Fill-in-the-Blank: The __________ is a measure of a
stock's volatility in relation to the overall market.
Correct Answer: Beta
Rationale: Beta is a measure of the volatility, or
systematic risk, of a security or portfolio in comparison to
the market as a whole.
7. True/False: A higher debt-to-equity ratio generally
indicates a lower risk for investors.
Correct Answer: False
Rationale: A higher debt-to-equity ratio indicates higher
leverage and typically signifies higher risk for investors as
the company has more debt relative to its equity.
8. Multiple Response: Which of the following factors affect
©2024/2025
