FINA 3311 TEST 1 EXAM QUESTIONS
AND ANSWERS 100% PASS 2026/2027
You are considering an investment in a U.S. Treasury bond but you are not sure what rate of
interest it should pay. Assume that the real
risk−free
rate of interest is 1.0%; inflation is expected to be 1.5%; the maturity risk premium is 2.5%; and,
the default risk premium for AAA rated corporate bonds is 3.5%. What rate of interest should
the U.S. Treasury bond pay? - ANS 5%
(Rate of Interest + Inflation + maturity risk premium)
What is the term for a graphical representation of the relationship between interest rates and
the maturities of debt securities? - ANS yield curve
The investment banker performs what three basic functions? - ANS underwriting,
distributing, and advising
The New York Stock Exchange (NYSE) is - ANS a hybrid market, allowing for
face−to−face
trading on the floor of the stock exchange in addition to automated, electronic trading.
@2026 ALLRIGHTS RESERVED 1
, John calls his stockbroker and instructs him to purchase 100 shares of Microsoft Corporation
common stock. This transaction occurs in the - ANS secondary market.
A "Dutch auction" was used by Google to raise money in 2004. A Dutch auction involves -
ANS allowing investors to submit bids saying how many shares they'd like to buy and at what
price.
Three ways that savings can be transferred through the financial markets include all of the
following EXCEPT - ANS indirect transfer using the venture capital firm.
Which of the following securities will likely have the highest liquidity premium? -
ANS Aaa−rated
corporate bond maturing in 2019 not actively traded
Which of the following is an example of both a capital market and a primary market
transaction? - ANS Ford Motor Company sells a new issue of common stock to raise funds
through a public offering.
Which of the following premiums is NOT factored into the price of a
long−term
Treasury bond? - ANS default−risk
premium
The long-run goal of the firm is to - ANS maximize shareholder wealth.
Project A is expected to generate positive cash flow of $1 million in 10 years while Project B is
expected to generate $500,000 in 5 years. Therefore - ANS Project B may be preferred to
Project A if the opportunity cost of money is high enough.
@2026 ALLRIGHTS RESERVED 2
AND ANSWERS 100% PASS 2026/2027
You are considering an investment in a U.S. Treasury bond but you are not sure what rate of
interest it should pay. Assume that the real
risk−free
rate of interest is 1.0%; inflation is expected to be 1.5%; the maturity risk premium is 2.5%; and,
the default risk premium for AAA rated corporate bonds is 3.5%. What rate of interest should
the U.S. Treasury bond pay? - ANS 5%
(Rate of Interest + Inflation + maturity risk premium)
What is the term for a graphical representation of the relationship between interest rates and
the maturities of debt securities? - ANS yield curve
The investment banker performs what three basic functions? - ANS underwriting,
distributing, and advising
The New York Stock Exchange (NYSE) is - ANS a hybrid market, allowing for
face−to−face
trading on the floor of the stock exchange in addition to automated, electronic trading.
@2026 ALLRIGHTS RESERVED 1
, John calls his stockbroker and instructs him to purchase 100 shares of Microsoft Corporation
common stock. This transaction occurs in the - ANS secondary market.
A "Dutch auction" was used by Google to raise money in 2004. A Dutch auction involves -
ANS allowing investors to submit bids saying how many shares they'd like to buy and at what
price.
Three ways that savings can be transferred through the financial markets include all of the
following EXCEPT - ANS indirect transfer using the venture capital firm.
Which of the following securities will likely have the highest liquidity premium? -
ANS Aaa−rated
corporate bond maturing in 2019 not actively traded
Which of the following is an example of both a capital market and a primary market
transaction? - ANS Ford Motor Company sells a new issue of common stock to raise funds
through a public offering.
Which of the following premiums is NOT factored into the price of a
long−term
Treasury bond? - ANS default−risk
premium
The long-run goal of the firm is to - ANS maximize shareholder wealth.
Project A is expected to generate positive cash flow of $1 million in 10 years while Project B is
expected to generate $500,000 in 5 years. Therefore - ANS Project B may be preferred to
Project A if the opportunity cost of money is high enough.
@2026 ALLRIGHTS RESERVED 2
