Fin 300 Exam Questions with Complete Solutions

Abnormal Return - Answers-A term used to describe the returns generated by a given security or portfolio over a period of time that is different from the expected rate of return.Actual Return on an Investment-Normal Return Fundamental Analysis - Answers-The evaluation of the economic and financial information relevant to the corporation's future earnings and growth with a view to determining the value or price that a share of the company should command. Insider Trading - Answers-Major corporate officers, members of the board of directors, and significant shareholders that are required to submit to the SEC monthly reports regarding their transactions in the stock of the firm. Portfolio - Answers-A group or collection of investments structured with the intention of achieving some objective (usually returns), subject to constraints (usually risk) Present Value (PV) - Answers-Value of cash flows translated into current or present dollars Primary Market - Answers-Where new issues of equity or debt are sold Technical Analysis - Answers-Based on the idea that a pattern of stock prices reveals the pattern of demand and supply in the market. Assumes that the information investors bring to the market can be charted, analyzed, and used to reveal the relative strength of demand and supply. Risk Averse - Answers-An investor will take on more risk if and only if he is compensated through the expectation of higher return Risk Premium - Answers-Expected return on the portfolio in excess of the risk free rate of return. This is the added return required to compensate the investor for the exposure to systematic risk. Weak Form Efficiency - Answers-Prices fully reflect all information conveyed by historical price and trading data Secondary Market - Answers-Market for securities issued in the past Security Market Line (SML) - Answers-The relationship described by the CAPM equation; it specifies the linear relationship between the level of systematic risk (B) and the normal return (E[R])