FIN 301 PSU EXAM 1 (QUESTIONS)
WITH CORRECT ANSWERS
Beta is used in the capital asset model primarily as a measure of - Answer-Risk
According to the principles of finance, what should be management's goal when making
corporate decisions? - Answer-Maximizing Shareholder Value
The basic principles of finance dictate that in the short-run, stock prices are driven by -
Answer-Supply & Demand
All else equal, which of the following stocks should have the highest expected return?
Stock A: Standard Deviation - 15%
Stock B: Standard Deviation - 30%
Stock C: Standard Deviation- 5% - Answer-Stock B
According to the Principles of Finance, risk aversion means: - Answer-Investors takes
small risks, but do not avoid risk at all cost
True or False: In order to achieve the highest level of return for the amount of risk we
can take on, it is very important to not diversify our investments into different asset
classes, and to only invest in small-cap bio-tech stocks. - Answer-False
Which two financial metrics does Warren Buffet use to analyze companies? - Answer-
Profit Margin & Return on Equity
The random walk hypothesis is inconsistent with the efficient market hypothesis -
Answer-False
The 5th principle of finance states that management has fiduciary responsibility to act in
___________ interests - Answer-Shareholders'
Inflation decreases your return on investment by reducing the future value of the money
you receive on your investment - Answer-True
What is the correlation between the risk of an investment and its expected return? -
Answer-Positive
When Professor X started investing with a mutual fund, he had to pay a front-end load
of 5% of the money he was investing. What is this front-end load of 5% an example of?
- Answer-Transaction Costs
, If you invest in a stock with a beta of 0.7, you would expect your return to be - Answer-
Lower than that of the overall market
According to frank Russell's model of investor emotion through market cycles, investor
emotion in 2007 before the financial crisis would be best described as: - Answer-
Euphoria
Which of the following stocks is the safest? Stock A: Mean Return - 10%, Std. Deviation
- 10% | Stock B: Mean Return - 10%, Std. Deviation - 20% - Answer-Stock A
Company XYZ pays a $6 per share dividend. One year ago the price of the stock was
$83 and today the price is $70, what was the return on the stock? - Answer--8.4%
Given the following information, which stock has the highest return?
Stock A: Current Price: $100 - Purchase Price: $85 - Dividends Paid: $3
Stock B: Current Price: $630 - Purchase Price: $545 - Dividends Paid: $20 - Answer-
Stock A
True or False: A dollar today is worth less than a dollar tomorrow. - Answer-False
Apple's stock traded at $260 a year ago. If Apple's stock currently trades at $320 and
Apple paid a $10 per share dividend, what was the return on Apple's stock? - Answer-
26.9%
If the theory of efficient capital markets is correct, which of the following statements is
true? - Answer-It is useless to attempt to beat the market
Which of the following is NOT a reason a company aims to grow their market cap? -
Answer-It allows them to pay off owed liabilities to debt-holders
Which of the following CFO roles pertain to the Accounting department? - Answer-
Controller
Which of the following is NOT a management tenet according to Gordon Gekko? -
Answer-Management must grow the company
Which if the following is a capital structure decision? - Answer-Raising capital using
debt and equity
Which of the following is NOT one of the elements of the new corporate finance
environment? - Answer-Emphasis on executive bonuses
WITH CORRECT ANSWERS
Beta is used in the capital asset model primarily as a measure of - Answer-Risk
According to the principles of finance, what should be management's goal when making
corporate decisions? - Answer-Maximizing Shareholder Value
The basic principles of finance dictate that in the short-run, stock prices are driven by -
Answer-Supply & Demand
All else equal, which of the following stocks should have the highest expected return?
Stock A: Standard Deviation - 15%
Stock B: Standard Deviation - 30%
Stock C: Standard Deviation- 5% - Answer-Stock B
According to the Principles of Finance, risk aversion means: - Answer-Investors takes
small risks, but do not avoid risk at all cost
True or False: In order to achieve the highest level of return for the amount of risk we
can take on, it is very important to not diversify our investments into different asset
classes, and to only invest in small-cap bio-tech stocks. - Answer-False
Which two financial metrics does Warren Buffet use to analyze companies? - Answer-
Profit Margin & Return on Equity
The random walk hypothesis is inconsistent with the efficient market hypothesis -
Answer-False
The 5th principle of finance states that management has fiduciary responsibility to act in
___________ interests - Answer-Shareholders'
Inflation decreases your return on investment by reducing the future value of the money
you receive on your investment - Answer-True
What is the correlation between the risk of an investment and its expected return? -
Answer-Positive
When Professor X started investing with a mutual fund, he had to pay a front-end load
of 5% of the money he was investing. What is this front-end load of 5% an example of?
- Answer-Transaction Costs
, If you invest in a stock with a beta of 0.7, you would expect your return to be - Answer-
Lower than that of the overall market
According to frank Russell's model of investor emotion through market cycles, investor
emotion in 2007 before the financial crisis would be best described as: - Answer-
Euphoria
Which of the following stocks is the safest? Stock A: Mean Return - 10%, Std. Deviation
- 10% | Stock B: Mean Return - 10%, Std. Deviation - 20% - Answer-Stock A
Company XYZ pays a $6 per share dividend. One year ago the price of the stock was
$83 and today the price is $70, what was the return on the stock? - Answer--8.4%
Given the following information, which stock has the highest return?
Stock A: Current Price: $100 - Purchase Price: $85 - Dividends Paid: $3
Stock B: Current Price: $630 - Purchase Price: $545 - Dividends Paid: $20 - Answer-
Stock A
True or False: A dollar today is worth less than a dollar tomorrow. - Answer-False
Apple's stock traded at $260 a year ago. If Apple's stock currently trades at $320 and
Apple paid a $10 per share dividend, what was the return on Apple's stock? - Answer-
26.9%
If the theory of efficient capital markets is correct, which of the following statements is
true? - Answer-It is useless to attempt to beat the market
Which of the following is NOT a reason a company aims to grow their market cap? -
Answer-It allows them to pay off owed liabilities to debt-holders
Which of the following CFO roles pertain to the Accounting department? - Answer-
Controller
Which of the following is NOT a management tenet according to Gordon Gekko? -
Answer-Management must grow the company
Which if the following is a capital structure decision? - Answer-Raising capital using
debt and equity
Which of the following is NOT one of the elements of the new corporate finance
environment? - Answer-Emphasis on executive bonuses
