2024/2025 FIN3701 Corporate Finance
Exam Bundle | Latest Exam Questions with
Verified Solutions Comprehensive Study Guide
Contents
1 Risk and Return Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Time Value of Money and Valuation Questions . . . . . . . . . . . . . . . . . 2
3 Financial Statements and Decisions Questions . . . . . . . . . . . . . . . . . . 3
4 Accounting and Cash Flows Questions . . . . . . . . . . . . . . . . . . . . . . 4
5 Cost of Capital and Risk Questions . . . . . . . . . . . . . . . . . . . . . . . . 5
6 Specific FIN3701 Exam Questions . . . . . . . . . . . . . . . . . . . . . . . . . 6
7 Additional Relevant Questions and Answers (100 More) . . . . . . . . . . . . . 7
8 Extended Additional Questions for Comprehensive Coverage . . . . . . . . . . 13
9 Further Extended Questions for Depth . . . . . . . . . . . . . . . . . . . . . . 18
1
,1 Risk and Return Questions
1. Which one of the following best defines the variance of an investment’s annual re-
turns over a number of years?
The average squared difference between the actual returns and the arithmetic av-
erage return.
2. Standard deviation is a measure of which one of the following?
Volatility.
3. Which one of the following is defined by its mean and its standard deviation?
Normal distribution.
4. The average compound return earned per year over a multi-year period is called
the ____ average return.
Geometric.
5. Which of the following statements is correct in relation to a stock investment?
The capital gains yield can be positive, negative, or zero. The dividend yield can
only be zero or positive.
6. The real rate of return on a stock is approximately equal to the nominal rate of
return:
Minus the inflation rate.
7. Which one of the following statements is correct?
The greater the volatility of returns, the greater the risk premium.
8. If the variability of the returns on large-company stocks were to increase over the
long-term, you would expect which of the following to occur as a result?
Increase in the average long-term rate of return for large-company stocks. Increase
in the risk premium for large-company stocks.
9. Estimates of the rate of return on a security based on a historical arithmetic average
will probably tend to ____ the expected return for the long-term while estimates
using the historical geometric average will probably tend to ____ the expected
return for the short-term.
Overestimate; underestimate.
10. Which two of the following are the most likely reasons why a stock price might not
react at all on the day that new information related to the stock issuer is released?
The information was expected. The information is not immediately useful in valuing
the stock.
11. Which one of the following measures the amount of systematic risk present in a
particular risky asset relative to the systematic risk present in an average risky
asset?
Beta.
12. Which one of the following is a positively sloped linear function that is created
when expected returns are graphed against security betas?
Security market line.
1
, 13. Which one of the following is represented by the slope of the security market line?
Market risk premium.
14. Which one of the following is the formula that explains the relationship between
the expected return on a security and the level of that security’s systematic risk?
Capital asset pricing model.
15. Standard deviation measures which type of risk?
Total.
2 Time Value of Money and Valuation Questions
1. There are two financial products. A will offer $120,000 in five years. B will offer
$5000 every quarter from now for five years. Assuming quarterly compounding and
your required return is 10%. Which product should you invest today?
Product B, as its present value is higher.
2. What is the present value of product A?
$73,232.
3. What is the present value of product B?
$79,894.
4. There are two financial products. A will offer $100,000 in five years. B will offer
$1,500 every month from now for five years. Product A is (single or multiple) cash
flow(s)?
Single.
5. $100,000 is (present or future) value?
Future.
6. Product B is (single or multiple) cash flow(s)?
Multiple.
7. How many cash flow(s) in total for product B?
60.
8. Assume APR = 10%, compute EAR for Annual compounding, m = 1.
0.1000.
9. Assume APR = 10%, compute EAR for Semi-annual compounding, m = 2.
0.1025.
10. Assume APR = 10%, compute EAR for Quarterly compounding, m = 4.
0.1038.
11. Assume APR = 10%, compute EAR for Monthly compounding, m = 12.
0.1047.
12. Assume APR = 10%, compute EAR for Daily compounding, m = 365.
0.1052.
13. Assume APR = 10%, compute EAR for Continuous compounding, m = ∞.
0.1052.
2
Exam Bundle | Latest Exam Questions with
Verified Solutions Comprehensive Study Guide
Contents
1 Risk and Return Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Time Value of Money and Valuation Questions . . . . . . . . . . . . . . . . . 2
3 Financial Statements and Decisions Questions . . . . . . . . . . . . . . . . . . 3
4 Accounting and Cash Flows Questions . . . . . . . . . . . . . . . . . . . . . . 4
5 Cost of Capital and Risk Questions . . . . . . . . . . . . . . . . . . . . . . . . 5
6 Specific FIN3701 Exam Questions . . . . . . . . . . . . . . . . . . . . . . . . . 6
7 Additional Relevant Questions and Answers (100 More) . . . . . . . . . . . . . 7
8 Extended Additional Questions for Comprehensive Coverage . . . . . . . . . . 13
9 Further Extended Questions for Depth . . . . . . . . . . . . . . . . . . . . . . 18
1
,1 Risk and Return Questions
1. Which one of the following best defines the variance of an investment’s annual re-
turns over a number of years?
The average squared difference between the actual returns and the arithmetic av-
erage return.
2. Standard deviation is a measure of which one of the following?
Volatility.
3. Which one of the following is defined by its mean and its standard deviation?
Normal distribution.
4. The average compound return earned per year over a multi-year period is called
the ____ average return.
Geometric.
5. Which of the following statements is correct in relation to a stock investment?
The capital gains yield can be positive, negative, or zero. The dividend yield can
only be zero or positive.
6. The real rate of return on a stock is approximately equal to the nominal rate of
return:
Minus the inflation rate.
7. Which one of the following statements is correct?
The greater the volatility of returns, the greater the risk premium.
8. If the variability of the returns on large-company stocks were to increase over the
long-term, you would expect which of the following to occur as a result?
Increase in the average long-term rate of return for large-company stocks. Increase
in the risk premium for large-company stocks.
9. Estimates of the rate of return on a security based on a historical arithmetic average
will probably tend to ____ the expected return for the long-term while estimates
using the historical geometric average will probably tend to ____ the expected
return for the short-term.
Overestimate; underestimate.
10. Which two of the following are the most likely reasons why a stock price might not
react at all on the day that new information related to the stock issuer is released?
The information was expected. The information is not immediately useful in valuing
the stock.
11. Which one of the following measures the amount of systematic risk present in a
particular risky asset relative to the systematic risk present in an average risky
asset?
Beta.
12. Which one of the following is a positively sloped linear function that is created
when expected returns are graphed against security betas?
Security market line.
1
, 13. Which one of the following is represented by the slope of the security market line?
Market risk premium.
14. Which one of the following is the formula that explains the relationship between
the expected return on a security and the level of that security’s systematic risk?
Capital asset pricing model.
15. Standard deviation measures which type of risk?
Total.
2 Time Value of Money and Valuation Questions
1. There are two financial products. A will offer $120,000 in five years. B will offer
$5000 every quarter from now for five years. Assuming quarterly compounding and
your required return is 10%. Which product should you invest today?
Product B, as its present value is higher.
2. What is the present value of product A?
$73,232.
3. What is the present value of product B?
$79,894.
4. There are two financial products. A will offer $100,000 in five years. B will offer
$1,500 every month from now for five years. Product A is (single or multiple) cash
flow(s)?
Single.
5. $100,000 is (present or future) value?
Future.
6. Product B is (single or multiple) cash flow(s)?
Multiple.
7. How many cash flow(s) in total for product B?
60.
8. Assume APR = 10%, compute EAR for Annual compounding, m = 1.
0.1000.
9. Assume APR = 10%, compute EAR for Semi-annual compounding, m = 2.
0.1025.
10. Assume APR = 10%, compute EAR for Quarterly compounding, m = 4.
0.1038.
11. Assume APR = 10%, compute EAR for Monthly compounding, m = 12.
0.1047.
12. Assume APR = 10%, compute EAR for Daily compounding, m = 365.
0.1052.
13. Assume APR = 10%, compute EAR for Continuous compounding, m = ∞.
0.1052.
2
