FIN 501 CH 7, 8 EXAM QUESTIONS AND
ANSWERS 100% PASS 2026 EDITION
One of the basic premises of security analysis, and in particular fundamental analysis, is that
A) a stock's price is based on its past cash flows rather than on anticipated future cash flows.
B) market sectors do not move in concert with business cycles.
C) all securities have an intrinsic value that their market value will approach over time.
D) a security's risk has relatively little effect on the security's return. - ANS C
The intrinsic value of a security is based on the
I. amount of risk.
II. current market value of the security.
III. discount rate applicable to the security.
IV. estimated future cash flows from the security. - ANS I, III and IV only
The three steps in determining a stock's intrinsic value are
I. estimating the stock's future cash flows.
II. estimating the risk associated with future cash flows.
III. careful analysis of patterns in the stock's recent price history.
IV. estimating an appropriate discount rate to apply to future cash flows. - ANS I, II and IV
only
1
@2026 EDITION ALLRIGHTS RESERVED
,The basic motivation of security analysis is to help investors
A) identify the best times to buy and sell securities.
B) contribute to the efficiency of securities markets.
C) identify securities whose intrinsic values are at or near their market values.
D) identify mispriced stocks. - ANS D
Top-down security analysis
A) starts with the fundamental analysis of a firm.
B) includes economic, industry, and fundamental analysis.
C) concentrates on the competency of the senior management of a firm.
D) centers on the past performance of a firm. - ANS B
The normal sequence in performing top down analysis is
A) competition, consumer demand, threat of substitute products.
B) market conditions, risk, company fundamentals.
C) economy, industry, company.
D) profitability, efficiency, liquidity. - ANS C
Fundamental analysis involves the in-depth study of the
A) role of nondiversifiable risk in an investor's portfolio.
B) financial condition and operating results of a given firm.
C) pattern of security prices as revealed in chart formations.
D) role of diversifiable risk in an investor's portfolio. - ANS B
2
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,Investment analysts who believe that a thorough investigation of a company's financial
condition, product development, management and other intrinsic factors can discover stocks
that are priced above or below their intrinsic value are advocates of
A) fundamental analysis.
B) behavioral analysis.
C) the efficient market hypothesis.
D) technical analysis. - ANS A
Which measure of the business cycle represents the market value of all goods and services
produced in a country over a twelve-month period?
A) industrial production index
B) money supply
C) gross domestic product
D) productivity average - ANS C
Which one of the following is likely to have a negative effect on stock prices?
A) falling interest rates
B) a decrease in the money supply (M2)
C) low inflation
D) a decrease in the unemployment rate - ANS B
The Federal Reserve through monetary policy can help expand the economy by
A) lowering income taxes on individuals.
B) reducing tariffs such that foreign exports can increase.
C) supporting a moderate growth of the money supply.
D) increasing government spending on the national infrastructure. - ANS C
3
@2026 EDITION ALLRIGHTS RESERVED
, Rising interest rates tend to
A) contract the level of economic activity.
B) increase the level of business investment.
C) indicate governmental expansion of the economy.
D) signal the trough of a recessionary market. - ANS A
The government has an expansionary economic policy when it
A) increases taxes.
B) increases government spending.
C) promotes rising interest rates.
D) limits exports of goods and services. - ANS B
Rising corporate profits are likely to have the greatest effect on which of the following industrial
sectors?
A) business equipment
B) defense
C) food and agriculture
D) consumer durables - ANS A
Which of the following businesses will be positively impacted by a weak dollar?
A) retailing
B) imports
C) exports
D) personal services - ANS C
Which of the following businesses will be negatively impacted by a strong dollar?
4
@2026 EDITION ALLRIGHTS RESERVED
ANSWERS 100% PASS 2026 EDITION
One of the basic premises of security analysis, and in particular fundamental analysis, is that
A) a stock's price is based on its past cash flows rather than on anticipated future cash flows.
B) market sectors do not move in concert with business cycles.
C) all securities have an intrinsic value that their market value will approach over time.
D) a security's risk has relatively little effect on the security's return. - ANS C
The intrinsic value of a security is based on the
I. amount of risk.
II. current market value of the security.
III. discount rate applicable to the security.
IV. estimated future cash flows from the security. - ANS I, III and IV only
The three steps in determining a stock's intrinsic value are
I. estimating the stock's future cash flows.
II. estimating the risk associated with future cash flows.
III. careful analysis of patterns in the stock's recent price history.
IV. estimating an appropriate discount rate to apply to future cash flows. - ANS I, II and IV
only
1
@2026 EDITION ALLRIGHTS RESERVED
,The basic motivation of security analysis is to help investors
A) identify the best times to buy and sell securities.
B) contribute to the efficiency of securities markets.
C) identify securities whose intrinsic values are at or near their market values.
D) identify mispriced stocks. - ANS D
Top-down security analysis
A) starts with the fundamental analysis of a firm.
B) includes economic, industry, and fundamental analysis.
C) concentrates on the competency of the senior management of a firm.
D) centers on the past performance of a firm. - ANS B
The normal sequence in performing top down analysis is
A) competition, consumer demand, threat of substitute products.
B) market conditions, risk, company fundamentals.
C) economy, industry, company.
D) profitability, efficiency, liquidity. - ANS C
Fundamental analysis involves the in-depth study of the
A) role of nondiversifiable risk in an investor's portfolio.
B) financial condition and operating results of a given firm.
C) pattern of security prices as revealed in chart formations.
D) role of diversifiable risk in an investor's portfolio. - ANS B
2
@2026 EDITION ALLRIGHTS RESERVED
,Investment analysts who believe that a thorough investigation of a company's financial
condition, product development, management and other intrinsic factors can discover stocks
that are priced above or below their intrinsic value are advocates of
A) fundamental analysis.
B) behavioral analysis.
C) the efficient market hypothesis.
D) technical analysis. - ANS A
Which measure of the business cycle represents the market value of all goods and services
produced in a country over a twelve-month period?
A) industrial production index
B) money supply
C) gross domestic product
D) productivity average - ANS C
Which one of the following is likely to have a negative effect on stock prices?
A) falling interest rates
B) a decrease in the money supply (M2)
C) low inflation
D) a decrease in the unemployment rate - ANS B
The Federal Reserve through monetary policy can help expand the economy by
A) lowering income taxes on individuals.
B) reducing tariffs such that foreign exports can increase.
C) supporting a moderate growth of the money supply.
D) increasing government spending on the national infrastructure. - ANS C
3
@2026 EDITION ALLRIGHTS RESERVED
, Rising interest rates tend to
A) contract the level of economic activity.
B) increase the level of business investment.
C) indicate governmental expansion of the economy.
D) signal the trough of a recessionary market. - ANS A
The government has an expansionary economic policy when it
A) increases taxes.
B) increases government spending.
C) promotes rising interest rates.
D) limits exports of goods and services. - ANS B
Rising corporate profits are likely to have the greatest effect on which of the following industrial
sectors?
A) business equipment
B) defense
C) food and agriculture
D) consumer durables - ANS A
Which of the following businesses will be positively impacted by a weak dollar?
A) retailing
B) imports
C) exports
D) personal services - ANS C
Which of the following businesses will be negatively impacted by a strong dollar?
4
@2026 EDITION ALLRIGHTS RESERVED
