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FIN 301 Final Exam Practice Test with Verified Answers

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  • FIN 301
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  • FIN 301

In CAPM, the expected return on a stock is directly related to its _____? A. Alpha B. Beta C. Interest Rate D. WACC E. All of the above - Answer-B Which of the following is true about bonds? A. The longer the maturity of the bond, the higher the interest rate risk B. There is a posit...

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  • 24 août 2024
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  • FIN 301
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FIN 301 Final Exam Practice Test with
Verified Answers
In CAPM, the expected return on a stock is directly related to its _____? A. Alpha
B. Beta
C. Interest Rate
D. WACC
E. All of the above - Answer-B

Which of the following is true about bonds?
A. The longer the maturity of the bond, the higher the interest rate risk
B. There is a positive relationship between market interest rate movements and bond
prices
C. The lower the default risk on the bond, the higher the yield of the bond
D. A decrease in market interest rate will decrease bond prices
E. Bonds prices are not affected by prepayment risk - Answer-A

What is the tax-equivalent yield of the following municipal bond? Price: $1,000 Coupon
Rate: 7.0% Federal tax rate: 30% Maturity: 15 years
A. 5.4%
B. 9.1%
C. 10.0%
D. 7.0%
E. 23.1% - Answer-C

If there are two non-callable $1,000 bonds that pay semi-annual interest, one with a 15-
year maturity and the other with a 30-year maturity and both with a coupon rate of 8%,
what will happen to their values if market interest rate rises to 12%?
A. The value of the 15-year bond will be $47.93 higher than the 30-year bond
B. The value of the 30-year bond will be $47.93 higher than the 15-year bond
C. The value of the 15-year bond will be $49.77 higher than the 30-year bond
D. The value of the 30-year bond will be $49.77 higher than the 15-year bond
E. Their values will be the same because their coupon rates are the same - Answer-A

Which of the following statements is false:
A. Poor profits for a firm can negatively affect its stock price
B. A firm's profits and market value have a direct relationship
C. A stock's value depends most on interest rates, profits, and risks
D. The market value of a company is total market value of its assets
E. A public company's market value is calculated by multiplying the shares outstanding
by its current market stock price - Answer-D

, If you bought a stock for $50 and sold it for $60 after a year, you also received a
quarterly dividend of $2.00 throughout the year. What was the rate of return you
received over the year?
A. 24.0%
B. 30.0%
C. 36.0%
D. 42.0%
E. 48.0% - Answer-C

Shawn currently owns Stock Z and wants to diversify his portfolio to reduce his
exposure to unsystematic risk. Given the correlation of Stock Z with the following
stocks, which stock should he own along with Stock Z? A. Stock A: Correlation=1.0
B. Stock B: Correlation=0.10
C. Stock C: Correlation=0.50
D. Stock D: Correlation= 0.70
E. Stock E: Correlation= 0.30 - Answer-B

Making decisions to maximize expected return based on a given level of market risk is
an example of _____________.
A. Technical analysis
B. Fundamental analysis
C. Managerial analysis
D. Behavioral analysis
E. Modern Portfolio theory - Answer-E

Select the FALSE statement regarding diversification
A. The ways to reduce risk associated with financial assets are hedging, diversification,
insurance, and selling the financial assets
B. Diversification reduces both systematic and unsystematic risk
C. Diversification acts to reduce risk as long as the returns of assets are not perfectly
correlated
D. Unsystematic risk of a portfolio can be reduced through diversification.
E. Diversification works worst when the returns of the assets are highly, positively
correlated - Answer-B

Assume you have a 30-year semi-annual zero-coupon bond with $1,000 face value.
The market rate increases to from 10% to 12%. What is the change in the bond's
market value?
A. No change
B. -$41
C. -$23
D. $19 E. $26 - Answer-c

In an efficient market, when a firm makes an announcement that one of its investments
has been successful and it will result in a positive NPV, the stock price will:
A. decline gradually over the next few days

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