Finance 301 Exam 1 Study Guide
2026/2027 COMPLETE QUESTIONS WITH
CORRECT DETAILED ANSWERS
1. Finance - ANSWER ✅ involves the management of money
-amount, time, risk
2. Three areas of Finance - ANSWER ✅ Corporate Finance- businesses
Institutions and Markets- financial markets
Investments- investors
3. corporate finance - ANSWER ✅ The activities involved in managing money
in a business environment.
4. institutions and markets - ANSWER ✅ Examines the structure of capital
markets, the role of financial institutions, the process of financial
intermediation and how money flows into the economy
5. investments - ANSWER ✅ focuses on the valuation techniques and how to
value alternative investment opportunities that are provided primarily through
financial markets and institutions
6. IRA - ANSWER ✅ an investors annual contribution to an IRA is tax-
deductible if the investors income does not exceed a certain level. Current
maximum tax-deductible contribution to an IRA is 5000 dollars. Tax is
deferred until the money is withdrawn and at current income.
,7. Roth IRA - ANSWER ✅ not tax deductible but allows dividend, interest and
capital gains on the investments to compound on a tax-exempt basis. If the
investor is at least 591/2 and has invest for at least 5 years he may withdraw
money on a tax-free basis.
8. 401 (k) - ANSWER ✅ Allows tax-deferred investments to a retirement
account. May be matched by employer.
9. 7. Time Value of Money - ANSWER ✅ Time and the Value of Money are
inversely related
-spending money today and receiving cash payments in the future.
10.Compounding - ANSWER ✅ the process of going from today's value, or pv,
to some expected but unknown future value.
-multiply by number greater than 1.0 over a number of time periods.
11.Future Value - ANSWER ✅ the amount of money that an investment will
grow to at some future date by earning interest at a certain rate.
FV= PV (1+r)^n
12.Discounting - ANSWER ✅ The process of finding present value; the inverse
of compounding to find future value.
DF = 1/ (1+r)^n
PV= FV/(1+ r)^n
13.8. Asset Allocation - ANSWER ✅ Some investors maintain a fixed
percentage of their funds in asset classes (20 percent cash, 30 percent bonds,
50 percent stocks).
, -should reflect beliefs about the anticipated risk and return of asset classes.
IMPORTANT DECISION TO DETERMINE RANGE OF EXPECTED
RETURNS
14.9. Diversification - ANSWER ✅ Asset Diversification will reduce risk.
-spread your wealth among a number of different investments and asset
classes.
-invest in a group of assets that provides you with the best return possible
given a level of risk.
15.-Diversification tips - ANSWER ✅ dont invest in an industry in which you
work
-bad idea to invest in the stock of his employer
-have enough liquid assets to finance six months of expenses and some
unforeseen emergencies, and insurance to cover tragedies.
16.efficient frontier - ANSWER ✅ achieving the highest return for each level of
risk is known as investing efficiently.
-portfolios that are designed with he help of computer modeling and are
beyond the scope of this book
17.Two Types of risk - ANSWER ✅ Systematic
unsystematic
18.Systematic Risk - ANSWER ✅ the risk of the stock market
-changes in stock prices are caused by changes in the economy, taxes, risk,
and other market factors.
-measured by beta
19.*Unsystematic Risk - ANSWER ✅ specific to a company
, -risk inherent to a particular stock due to decisions made by a corporation
relative to the industry in which it operates
-CAN BE REDUCED BY DIVERSIFICATION
20.Total Risk - ANSWER ✅ Total Risk= Systematic + Unsystematic Risk
-20 to 25 stocks are sufficient enough to diversify a portfolio
21.10. Investment Valuation - ANSWER ✅ Value equals the sum of expected
cash flows discounted for time and risk
22.Capital Asset Pricing Method - ANSWER ✅ a model that estimates the rate
of return an investor should expect to receive on a risky asset.
-determine discount rate to use when valuing an asset.
expected return = risk free rate + risk premium
E(Ri) = Rf + Bi*(E(Rm)-Rf0
23.Market Risk Premium - ANSWER ✅ the difference between the expected
return on a market portfolio and the risk-free rate.
24.Simple Average (interest) - ANSWER ✅ when an investment pays interest
only on the original principal
25.CFO - ANSWER ✅ Company officer responsible for managing a
corporations finance function.
-oversees a corporations working capital decision, the capital budgeting
decision and the capital structure decision.
26.Controller - ANSWER ✅ Corporation officer who handles and monitors a
corporations accounting and auditing activities.
2026/2027 COMPLETE QUESTIONS WITH
CORRECT DETAILED ANSWERS
1. Finance - ANSWER ✅ involves the management of money
-amount, time, risk
2. Three areas of Finance - ANSWER ✅ Corporate Finance- businesses
Institutions and Markets- financial markets
Investments- investors
3. corporate finance - ANSWER ✅ The activities involved in managing money
in a business environment.
4. institutions and markets - ANSWER ✅ Examines the structure of capital
markets, the role of financial institutions, the process of financial
intermediation and how money flows into the economy
5. investments - ANSWER ✅ focuses on the valuation techniques and how to
value alternative investment opportunities that are provided primarily through
financial markets and institutions
6. IRA - ANSWER ✅ an investors annual contribution to an IRA is tax-
deductible if the investors income does not exceed a certain level. Current
maximum tax-deductible contribution to an IRA is 5000 dollars. Tax is
deferred until the money is withdrawn and at current income.
,7. Roth IRA - ANSWER ✅ not tax deductible but allows dividend, interest and
capital gains on the investments to compound on a tax-exempt basis. If the
investor is at least 591/2 and has invest for at least 5 years he may withdraw
money on a tax-free basis.
8. 401 (k) - ANSWER ✅ Allows tax-deferred investments to a retirement
account. May be matched by employer.
9. 7. Time Value of Money - ANSWER ✅ Time and the Value of Money are
inversely related
-spending money today and receiving cash payments in the future.
10.Compounding - ANSWER ✅ the process of going from today's value, or pv,
to some expected but unknown future value.
-multiply by number greater than 1.0 over a number of time periods.
11.Future Value - ANSWER ✅ the amount of money that an investment will
grow to at some future date by earning interest at a certain rate.
FV= PV (1+r)^n
12.Discounting - ANSWER ✅ The process of finding present value; the inverse
of compounding to find future value.
DF = 1/ (1+r)^n
PV= FV/(1+ r)^n
13.8. Asset Allocation - ANSWER ✅ Some investors maintain a fixed
percentage of their funds in asset classes (20 percent cash, 30 percent bonds,
50 percent stocks).
, -should reflect beliefs about the anticipated risk and return of asset classes.
IMPORTANT DECISION TO DETERMINE RANGE OF EXPECTED
RETURNS
14.9. Diversification - ANSWER ✅ Asset Diversification will reduce risk.
-spread your wealth among a number of different investments and asset
classes.
-invest in a group of assets that provides you with the best return possible
given a level of risk.
15.-Diversification tips - ANSWER ✅ dont invest in an industry in which you
work
-bad idea to invest in the stock of his employer
-have enough liquid assets to finance six months of expenses and some
unforeseen emergencies, and insurance to cover tragedies.
16.efficient frontier - ANSWER ✅ achieving the highest return for each level of
risk is known as investing efficiently.
-portfolios that are designed with he help of computer modeling and are
beyond the scope of this book
17.Two Types of risk - ANSWER ✅ Systematic
unsystematic
18.Systematic Risk - ANSWER ✅ the risk of the stock market
-changes in stock prices are caused by changes in the economy, taxes, risk,
and other market factors.
-measured by beta
19.*Unsystematic Risk - ANSWER ✅ specific to a company
, -risk inherent to a particular stock due to decisions made by a corporation
relative to the industry in which it operates
-CAN BE REDUCED BY DIVERSIFICATION
20.Total Risk - ANSWER ✅ Total Risk= Systematic + Unsystematic Risk
-20 to 25 stocks are sufficient enough to diversify a portfolio
21.10. Investment Valuation - ANSWER ✅ Value equals the sum of expected
cash flows discounted for time and risk
22.Capital Asset Pricing Method - ANSWER ✅ a model that estimates the rate
of return an investor should expect to receive on a risky asset.
-determine discount rate to use when valuing an asset.
expected return = risk free rate + risk premium
E(Ri) = Rf + Bi*(E(Rm)-Rf0
23.Market Risk Premium - ANSWER ✅ the difference between the expected
return on a market portfolio and the risk-free rate.
24.Simple Average (interest) - ANSWER ✅ when an investment pays interest
only on the original principal
25.CFO - ANSWER ✅ Company officer responsible for managing a
corporations finance function.
-oversees a corporations working capital decision, the capital budgeting
decision and the capital structure decision.
26.Controller - ANSWER ✅ Corporation officer who handles and monitors a
corporations accounting and auditing activities.
