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ALL RIGHTS RESERVED.
CFIN Final Study Guide Questions With
Verified Answers
The higher the expected rate of inflation, _. - Answers✔The higher is the required rate of return
on investment
A corporate bond that yields 12% includes a risk-free rate of 7% and a default premium of 3%.
The Bond's maturity risk premium is _. - Answers✔2%
Which bond has the highest default risk for a given return? _. - Answers✔A CCC Corporate
bond with a 10-year maturity
Other things held constant, if a bond indenture contains a call provision, the yield to maturity
(YTM) on the bond that would exist without such a call provision will be _ the YTM with the
call provision. - Answers✔lower than
A bond that only pays interest if the firm has sufficient earnings to cover the interest payments is
called a(n): _. - Answers✔income bond
Which event would make it less likely for a company to choose to call its outstanding callable
bonds? - Answers✔an increase in interest rates
Which statement is true about a zero coupon bond? - Answers✔a zero coupon bond is issued at a
substantial discount below its par value
Which type of investor would be most likely to purchase zero coupon bonds? _. - Answers✔tax
free investors such as pension funds
The face value of a debt is _. - Answers✔the principal value written on the face, or outside cover
of the bond
A debt is said to be selling at par, when the _ of the debt is equal to the _. - Answers✔Maturity
value, par value of the debt
Commercial paper is a type of _. - Answers✔Promissory note
, ©THEBRIGHT EXAM SOLUTIONS 2024/2025
ALL RIGHTS RESERVED.
If interest rates decline, bondholders will earn _. - Answers✔a lower rate of return on reinvested
cash flows
The current market interest rate declines from 10% to 8%. Due to interest rate reinvestment risk,
the bondholders will _. - Answers✔earn a lower return on the reinvested cash flows
All else being equal, an increase in the yield to maturity of a bond will result in _. - Answers✔a
greater interest rate price risk on a long-term bond than on a short term bond.
The amount in excess of par value that a company must pay when it repurchases a security is
known as the _. - Answers✔call premium
Which of the following provisions will call for the repurchase and retirement of a given
percentage of the preferred stock each year? - Answers✔sinking fund
The change of receiving an actual return that differs from the one that is expected is called _. -
Answers✔risk
Diversification refers to the _. - Answers✔reduction of the stand-alone risk of an individual
investment, measure returns, by combing it with other investments in the portfolio
Which of the following is the only risk that is relevant to a rational, diversified investor? -
Answers✔market risk
Which of the following statements about beta is correct? - Answers✔Firms with greater
systematic risk volatilities than the market have betas that are greater than 1.0 and firms with
smaller systematic risk volatilities than the market have betas that are less than 1.0.
A portfolio is made up of Stocks A, B, C, and D in the proportion of 20%, 30%, 25%, and 25%
respectively. The nondiversifiable risks of the stocks as measured by their betas are 0.4, 1.2, 2.5,
and 1.75 for stock A, B, C, and D respectively. The expected returns of the stocks are 12%, 24%,
30%, and 28% respectively. Measure the beta of the portfolio. - Answers✔1.5
Which of the following is a component of systematic risk? - Answers✔financial risk
Diversifiable risk includes _. - Answers✔business risk
Which of the following statements about the various kinds of risk is true? - Answers✔liquidity
risk and political risk are systematic risks
Financial services refer to functions provided by organizations that _________. - Answers✔deal
with management of money
Identify a true statement about an S Corp - Answers✔the income of an S corp passes through the
company to the owners
ALL RIGHTS RESERVED.
CFIN Final Study Guide Questions With
Verified Answers
The higher the expected rate of inflation, _. - Answers✔The higher is the required rate of return
on investment
A corporate bond that yields 12% includes a risk-free rate of 7% and a default premium of 3%.
The Bond's maturity risk premium is _. - Answers✔2%
Which bond has the highest default risk for a given return? _. - Answers✔A CCC Corporate
bond with a 10-year maturity
Other things held constant, if a bond indenture contains a call provision, the yield to maturity
(YTM) on the bond that would exist without such a call provision will be _ the YTM with the
call provision. - Answers✔lower than
A bond that only pays interest if the firm has sufficient earnings to cover the interest payments is
called a(n): _. - Answers✔income bond
Which event would make it less likely for a company to choose to call its outstanding callable
bonds? - Answers✔an increase in interest rates
Which statement is true about a zero coupon bond? - Answers✔a zero coupon bond is issued at a
substantial discount below its par value
Which type of investor would be most likely to purchase zero coupon bonds? _. - Answers✔tax
free investors such as pension funds
The face value of a debt is _. - Answers✔the principal value written on the face, or outside cover
of the bond
A debt is said to be selling at par, when the _ of the debt is equal to the _. - Answers✔Maturity
value, par value of the debt
Commercial paper is a type of _. - Answers✔Promissory note
, ©THEBRIGHT EXAM SOLUTIONS 2024/2025
ALL RIGHTS RESERVED.
If interest rates decline, bondholders will earn _. - Answers✔a lower rate of return on reinvested
cash flows
The current market interest rate declines from 10% to 8%. Due to interest rate reinvestment risk,
the bondholders will _. - Answers✔earn a lower return on the reinvested cash flows
All else being equal, an increase in the yield to maturity of a bond will result in _. - Answers✔a
greater interest rate price risk on a long-term bond than on a short term bond.
The amount in excess of par value that a company must pay when it repurchases a security is
known as the _. - Answers✔call premium
Which of the following provisions will call for the repurchase and retirement of a given
percentage of the preferred stock each year? - Answers✔sinking fund
The change of receiving an actual return that differs from the one that is expected is called _. -
Answers✔risk
Diversification refers to the _. - Answers✔reduction of the stand-alone risk of an individual
investment, measure returns, by combing it with other investments in the portfolio
Which of the following is the only risk that is relevant to a rational, diversified investor? -
Answers✔market risk
Which of the following statements about beta is correct? - Answers✔Firms with greater
systematic risk volatilities than the market have betas that are greater than 1.0 and firms with
smaller systematic risk volatilities than the market have betas that are less than 1.0.
A portfolio is made up of Stocks A, B, C, and D in the proportion of 20%, 30%, 25%, and 25%
respectively. The nondiversifiable risks of the stocks as measured by their betas are 0.4, 1.2, 2.5,
and 1.75 for stock A, B, C, and D respectively. The expected returns of the stocks are 12%, 24%,
30%, and 28% respectively. Measure the beta of the portfolio. - Answers✔1.5
Which of the following is a component of systematic risk? - Answers✔financial risk
Diversifiable risk includes _. - Answers✔business risk
Which of the following statements about the various kinds of risk is true? - Answers✔liquidity
risk and political risk are systematic risks
Financial services refer to functions provided by organizations that _________. - Answers✔deal
with management of money
Identify a true statement about an S Corp - Answers✔the income of an S corp passes through the
company to the owners
