1
FINA 3315 Practice midterm Exam 1 Questions
with Correct Answers | Updated (100%
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 Answer: true
Which of the following are true concerning institutional investor?
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. Answer: True
Firms tend to repurchase shares of their outstanding stock when
they view the shares as undervalued. Answer: True
Which of the following will affect the firms future cash flows?
Answer: 1. State of the economy
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,2
2. State of the industry
3. New products in the firms pipeline
Companies with strong earnings but limited growth opportunities
Answer: generally pay high dividends.
The required rate of return denotes the minimum rate of return an
investor should expect 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. 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 Answer: -1.0
The financial crisis of 2008 resulted in Answer: 1. New regulations
© 2025 All rights reserved
, 3
2. A sharp reduction in the number of initial public offerings
Which one of the following is a major advantage of margins
trading? 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 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?
Answer: PV
Which of the following is not weighting scheme commonly used in
creating equity market indexes? Answer: Industry-weighted
For which one of the following situations will the dividend- growth
models work especially well? Answer: Mature firms with a policy of
increasing its earnings and dividends at an average rate of 5% per
year
Advantages of using American depositary receipts to participate in
foreign markets Answer: 1. Lower transactions costs than for direct
foreign stock purchases
2. Reduce exposure to foreign exchange risk
© 2025 All rights reserved
FINA 3315 Practice midterm Exam 1 Questions
with Correct Answers | Updated (100%
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 Answer: true
Which of the following are true concerning institutional investor?
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. Answer: True
Firms tend to repurchase shares of their outstanding stock when
they view the shares as undervalued. Answer: True
Which of the following will affect the firms future cash flows?
Answer: 1. State of the economy
© 2025 All rights reserved
,2
2. State of the industry
3. New products in the firms pipeline
Companies with strong earnings but limited growth opportunities
Answer: generally pay high dividends.
The required rate of return denotes the minimum rate of return an
investor should expect 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. 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 Answer: -1.0
The financial crisis of 2008 resulted in Answer: 1. New regulations
© 2025 All rights reserved
, 3
2. A sharp reduction in the number of initial public offerings
Which one of the following is a major advantage of margins
trading? 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 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?
Answer: PV
Which of the following is not weighting scheme commonly used in
creating equity market indexes? Answer: Industry-weighted
For which one of the following situations will the dividend- growth
models work especially well? Answer: Mature firms with a policy of
increasing its earnings and dividends at an average rate of 5% per
year
Advantages of using American depositary receipts to participate in
foreign markets Answer: 1. Lower transactions costs than for direct
foreign stock purchases
2. Reduce exposure to foreign exchange risk
© 2025 All rights reserved
