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FINA 3315 PRACTICE MIDTERM EXAM
1 2026 ACTUAL QUESTIONS WITH
VERIFIED ANSWERS.
The dividend valuation model (DVM) cannot accommodate
which of the following assumptions? - correct answer-a
constant growth rate of dividends greater than the required rate
of return
Which one of the following statements concerning financial
futures is correct? - correct answer-Except for short term
securities, interest rate futures are quoted based on a
percentage of the par value of the underlying debt security.
The major advantages of futures options over futures contracts
include
I. positions can be hedged with a smaller commitment of
capital.
II. potential losses are limited to the size of the contract.
III. greater leverage and the potential for higher percentage
returns.
IV. a greater variety of commodities is available for speculating
or hedging purposes. - correct answer-B. I, II and III only
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Which of the following statements concerning put options are
correct? - correct answer-B. The writer of a put profits if the
price of the underlying stock rises
Which of the following methods might be used to protect a profit
on a diversified portfolio of stocks?
A. Buy put options on a S & P 500 based ETF.
B. Write S&P 500 Index put options.
C. Buy S&P 500 Index put options.
D. Either A or B, but not C - correct answer-D. Either A or B, but
not C
Which one of the following statements is correct?
A. The market responds immediately to reflect the information
contained in quarterly earnings
reports.
B. Low P/E stocks tend to outperform high P/E stocks on a risk
− adjusted basis.
C. The weekend effect states that security prices tend to rise
between Friday afternoon and
Monday morning.
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D. The market fully anticipates the information contained in an
earnings announcement prior to
the actual announcement. - correct answer-B. Low P/E stocks
tend to outperform high P/E stocks on a risk − adjusted basis.
Which of the following characteristics apply to exchange −
traded funds (ETFs)?
I. unlimited number of outstanding shares
II. typically track the performance of some index
III. market prices reflect demand for the fund rather than NAV.
IV. shares are purchased from and redeemed by the investment
company managing the fund. - correct answer-I and II only
Purchasers of call options: - correct answer-have the right to
buy a certain number of underlying shares at a specified price.
Which of the following statements concerning mortgage backed
securities are correct?
I. They are secured by a pool of residential mortgages.
II. A portion of the income stream is a non − taxable return of
capital.
III. They are backed by the full faith and credit of the U.S.
government.
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IV. Their maturity depends on prepayments of the mortgages in
the pool - correct answer-I, II and IV only
A successful hedge results in a guaranteed sales price to the
producers of commodities. - correct answer-True
If a stock is purchased at the beginning of a year, a single
dividend is paid at the end of the year and the stock is sold
immediately after the dividend has been received. In this case -
correct answer-the internal rate of return equals the holding
period return.
A vertical spread with limited risk might involve - correct
answer-B. buying a call at a lower strike price and writing a call
at a higher strike price
Which of the following characteristics apply to closed − end
mutual funds?
I. unlimited number of outstanding shares
II. transactions are between shareholders
III. Market prices may be higher or lower than NAV.
FINA 3315 PRACTICE MIDTERM EXAM
1 2026 ACTUAL QUESTIONS WITH
VERIFIED ANSWERS.
The dividend valuation model (DVM) cannot accommodate
which of the following assumptions? - correct answer-a
constant growth rate of dividends greater than the required rate
of return
Which one of the following statements concerning financial
futures is correct? - correct answer-Except for short term
securities, interest rate futures are quoted based on a
percentage of the par value of the underlying debt security.
The major advantages of futures options over futures contracts
include
I. positions can be hedged with a smaller commitment of
capital.
II. potential losses are limited to the size of the contract.
III. greater leverage and the potential for higher percentage
returns.
IV. a greater variety of commodities is available for speculating
or hedging purposes. - correct answer-B. I, II and III only
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Which of the following statements concerning put options are
correct? - correct answer-B. The writer of a put profits if the
price of the underlying stock rises
Which of the following methods might be used to protect a profit
on a diversified portfolio of stocks?
A. Buy put options on a S & P 500 based ETF.
B. Write S&P 500 Index put options.
C. Buy S&P 500 Index put options.
D. Either A or B, but not C - correct answer-D. Either A or B, but
not C
Which one of the following statements is correct?
A. The market responds immediately to reflect the information
contained in quarterly earnings
reports.
B. Low P/E stocks tend to outperform high P/E stocks on a risk
− adjusted basis.
C. The weekend effect states that security prices tend to rise
between Friday afternoon and
Monday morning.
, Page | 3
D. The market fully anticipates the information contained in an
earnings announcement prior to
the actual announcement. - correct answer-B. Low P/E stocks
tend to outperform high P/E stocks on a risk − adjusted basis.
Which of the following characteristics apply to exchange −
traded funds (ETFs)?
I. unlimited number of outstanding shares
II. typically track the performance of some index
III. market prices reflect demand for the fund rather than NAV.
IV. shares are purchased from and redeemed by the investment
company managing the fund. - correct answer-I and II only
Purchasers of call options: - correct answer-have the right to
buy a certain number of underlying shares at a specified price.
Which of the following statements concerning mortgage backed
securities are correct?
I. They are secured by a pool of residential mortgages.
II. A portion of the income stream is a non − taxable return of
capital.
III. They are backed by the full faith and credit of the U.S.
government.
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IV. Their maturity depends on prepayments of the mortgages in
the pool - correct answer-I, II and IV only
A successful hedge results in a guaranteed sales price to the
producers of commodities. - correct answer-True
If a stock is purchased at the beginning of a year, a single
dividend is paid at the end of the year and the stock is sold
immediately after the dividend has been received. In this case -
correct answer-the internal rate of return equals the holding
period return.
A vertical spread with limited risk might involve - correct
answer-B. buying a call at a lower strike price and writing a call
at a higher strike price
Which of the following characteristics apply to closed − end
mutual funds?
I. unlimited number of outstanding shares
II. transactions are between shareholders
III. Market prices may be higher or lower than NAV.
