FIN Certification Exam Questions And Answers Verified Solution.
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Course
FIN.
Institution
FIN.
What is financial management - correct answer the allocation of resources under uncertainty through time
What is the objective of financial managers? - correct answer a. Maximization of shareholders' wealth
b. With an eff...
What is financial management - correct answer the allocation of resources under
uncertainty through time
What is the objective of financial managers? - correct answer a. Maximization of
shareholders' wealth
b. With an efficient financial market, shareholders can modify their pattern of consumption through
borrowing and lending and match their risk preferences.
What problems do we have in financial management? - correct answer Capital
budgeting, capital structure, return and risk, payout policy, information asymmetry, and corporate
governance.
What is a corporation? - correct answer a nexus of contracts
Where does the value of a corporation derive from? - correct answer its ability to
generate future cash flow
How can the value of a firm today be calculated? - correct answer the sum of the
present value of all the future cash flows that the firm can generate
What is risk? - correct answer The inaccuracy in predicting future outcome
What is diversification? - correct answer a strategy designed to reduce risk by
spreading the portfolio among many investments
How does diversification affect standard deviation? - correct answer It reduces the
standard deviation
, In a well-diversified portfolio, what what is the measure of risk? - correct answer
Beta
As beta increases, what does risk do? - correct answer increases
When two asset returns' correlation coefficient equals 1, what is the diversification effect? - correct
answer there is none
How can firms raise funds? - correct answer Internal financing (retained earnings)
and external financing (debt and equity)
What is capital structure decision? - correct answer a firm's financing decision that
addresses the mix of debt and equity financing
The role of financial markets and intermediaries in capital decision - correct answer
financial markets and intermediaries facilitate payment mechanism, borrowing and lending, pooling risk,
and information exchange
M&M Theory Assumptions - correct answer no tax, no bankruptcy costs, no
information asymmetry
M&M Theory Propositions - correct answer I: The market value of a firm does not
depend on the firm's leverage
II: A firm's return on debt and equity are positively correlated to its leverage.
III: A firm's return on assets is independent of its leverage.
What is the PV of the tax shield? - correct answer the sum of present value of all
future tax savings due to interest payment
In a world with no bankruptcy cost, no agency cost, not information asymmetry but tax, what is the
optimal capital structure? - correct answer 100% debt financing
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