FINA 3315 Practice midterm Exam 1
UPDATED ACTUAL Exam Questions and
CORRECT Answers
Market return is estimated from the average return on large sample of stocks such as those In the
Standard & Poor's 500 stock composite index - CORRECT ANSWER - true
Which of the following are true concerning institutional investor? - CORRECT
ANSWER - 1. Institutional investors are professionals who mange moneu for other people
2. Banks, insurance companies and mutual funds are all instituitonal investors
3. Institutional investors invesr large sums of money
In response to the same external force, the return on one investment may increase while the
return on another investment may decrease. - CORRECT ANSWER - True
Firms tend to repurchase shares of their outstanding stock when they view the shares as
undervalued. - CORRECT ANSWER - True
Which of the following will affect the firms future cash flows? - CORRECT ANSWER -
1. State of the economy
2. State of the industry
3. New products in the firms pipeline
Companies with strong earnings but limited growth opportunities - CORRECT
ANSWER - generally pay high dividends.
The required rate of return denotes the minimum rate of return an investor should expect -
CORRECT ANSWER - True
, ABC Company stock currently has a market value equivalent to its intrinsic value. Marco
perceives that ABC Company is increasing its level of risk and therefore Marco increases his
required rate of return on ABC stock. This change in the required rate of return
A) will reduce the intrinsic value of ABC stock to Marco.
B) will increase the intrinsic value of ABC stock to Marco.
C) will change the intrinsic value but the direction of the change cannot be determined.
D) is a signal to Marco that he should buy more ABC Company stock. - CORRECT
ANSWER - will reduce the intrinsic value of ABC stock to Marco.
The best stock to own when the stock market is at peak and is expected to decline in value is one
with beta of - CORRECT ANSWER - -1.0
The financial crisis of 2008 resulted in - CORRECT ANSWER - 1. New regulations
2. A sharp reduction in the number of initial public offerings
Which one of the following is a major advantage of margins trading? - CORRECT
ANSWER - Increase in potential profits on a percentage basis
When a company offers the investing public a certain number of shares of its stock at a certain
price, the company is making what is know as a - CORRECT ANSWER - Public offering
To compute the present value of $1,000 annuity received at the end of each of the next 3 years
and discounted at the rate of 5% per year, you should use which of the following excel
commands? - CORRECT ANSWER - PV
Which of the following is not weighting scheme commonly used in creating equity market
indexes? - CORRECT ANSWER - Industry-weighted
For which one of the following situations will the dividend- growth models work especially
well? - CORRECT ANSWER - Mature firms with a policy of increasing its earnings and
dividends at an average rate of 5% per year
UPDATED ACTUAL Exam Questions and
CORRECT Answers
Market return is estimated from the average return on large sample of stocks such as those In the
Standard & Poor's 500 stock composite index - CORRECT ANSWER - true
Which of the following are true concerning institutional investor? - CORRECT
ANSWER - 1. Institutional investors are professionals who mange moneu for other people
2. Banks, insurance companies and mutual funds are all instituitonal investors
3. Institutional investors invesr large sums of money
In response to the same external force, the return on one investment may increase while the
return on another investment may decrease. - CORRECT ANSWER - True
Firms tend to repurchase shares of their outstanding stock when they view the shares as
undervalued. - CORRECT ANSWER - True
Which of the following will affect the firms future cash flows? - CORRECT ANSWER -
1. State of the economy
2. State of the industry
3. New products in the firms pipeline
Companies with strong earnings but limited growth opportunities - CORRECT
ANSWER - generally pay high dividends.
The required rate of return denotes the minimum rate of return an investor should expect -
CORRECT ANSWER - True
, ABC Company stock currently has a market value equivalent to its intrinsic value. Marco
perceives that ABC Company is increasing its level of risk and therefore Marco increases his
required rate of return on ABC stock. This change in the required rate of return
A) will reduce the intrinsic value of ABC stock to Marco.
B) will increase the intrinsic value of ABC stock to Marco.
C) will change the intrinsic value but the direction of the change cannot be determined.
D) is a signal to Marco that he should buy more ABC Company stock. - CORRECT
ANSWER - will reduce the intrinsic value of ABC stock to Marco.
The best stock to own when the stock market is at peak and is expected to decline in value is one
with beta of - CORRECT ANSWER - -1.0
The financial crisis of 2008 resulted in - CORRECT ANSWER - 1. New regulations
2. A sharp reduction in the number of initial public offerings
Which one of the following is a major advantage of margins trading? - CORRECT
ANSWER - Increase in potential profits on a percentage basis
When a company offers the investing public a certain number of shares of its stock at a certain
price, the company is making what is know as a - CORRECT ANSWER - Public offering
To compute the present value of $1,000 annuity received at the end of each of the next 3 years
and discounted at the rate of 5% per year, you should use which of the following excel
commands? - CORRECT ANSWER - PV
Which of the following is not weighting scheme commonly used in creating equity market
indexes? - CORRECT ANSWER - Industry-weighted
For which one of the following situations will the dividend- growth models work especially
well? - CORRECT ANSWER - Mature firms with a policy of increasing its earnings and
dividends at an average rate of 5% per year
