FINA 3313 EXAM 2 QUESTIONS AND
ANSWERS 100% PASS 2026/2027
Which component is more likely to be biased if book values are used in the calculation of WACC
rather than market values? - ANS Common stock
Complete the following sentence. The WACC__________ - ANS For a firm represents the risk
and target capital structure of the firm's existing assets as a whole.
The risk free rate currently have a return of 2.5% and the market risk premium is 5.77%. If a firm
has a beta of 1.42 - ANS what is its cost of equity? , 0.025+1.42*(0.0577)=10.69%
If the Federal Reserve took action to increase interest rates a firm's cost of capital would
____________ ceteris paribus. - ANS increase
Which of the following is correct for a bond priced at $1100 that has ten years remaining until
maturity and a 10% coupon with semiannual payments? - ANS Each payment of interest
equals $50.
Which of the following bonds would be likely to exhibit a greater degree of interest-rate risk? -
ANS A zero-coupon bond with 30 years until maturity.
@2026 ALLRIGHTS RESERVED 1
, The discount rate that makes the present value of a bond's payments equal to its price is
termed the: - ANS Yield to maturity
Which of the following is correct concerning real interest rates? - ANS Real interest rates, if
positive, indicate increased purchasing power.
Suppose you have an investment in a stock that had a negative 50% return (a loss) in the first
year and a positive 50% return (a gain) in the second year. The geometric returns is 0% -
ANS false
scenario analysis - ANS an approach for assessing risk that uses several possible alternative
outcomes (scenarios) to obtain a sense of variability among returns
range - ANS a measure of an asset's risk, which is found by subtracting the return associated
with the pessimistic outcome from the return associated with the optimistic outcome
probability - ANS the chance that a given outcome will occur
probability distribution - ANS a model that relates probabilities to the associated outcomes
The variance of an investment's returns is a measure of the: - ANS volatility of the rates of
return.
The standard deviations of individual stocks are generally higher than the standard deviation of
the market portfolio because individual stocks: - ANS have no diversification risk
The benefits of portfolio diversification are highest when the individual securities have returns
that: - ANS are uncorrelated with the rest of the portfolio
@2026 ALLRIGHTS RESERVED 2
ANSWERS 100% PASS 2026/2027
Which component is more likely to be biased if book values are used in the calculation of WACC
rather than market values? - ANS Common stock
Complete the following sentence. The WACC__________ - ANS For a firm represents the risk
and target capital structure of the firm's existing assets as a whole.
The risk free rate currently have a return of 2.5% and the market risk premium is 5.77%. If a firm
has a beta of 1.42 - ANS what is its cost of equity? , 0.025+1.42*(0.0577)=10.69%
If the Federal Reserve took action to increase interest rates a firm's cost of capital would
____________ ceteris paribus. - ANS increase
Which of the following is correct for a bond priced at $1100 that has ten years remaining until
maturity and a 10% coupon with semiannual payments? - ANS Each payment of interest
equals $50.
Which of the following bonds would be likely to exhibit a greater degree of interest-rate risk? -
ANS A zero-coupon bond with 30 years until maturity.
@2026 ALLRIGHTS RESERVED 1
, The discount rate that makes the present value of a bond's payments equal to its price is
termed the: - ANS Yield to maturity
Which of the following is correct concerning real interest rates? - ANS Real interest rates, if
positive, indicate increased purchasing power.
Suppose you have an investment in a stock that had a negative 50% return (a loss) in the first
year and a positive 50% return (a gain) in the second year. The geometric returns is 0% -
ANS false
scenario analysis - ANS an approach for assessing risk that uses several possible alternative
outcomes (scenarios) to obtain a sense of variability among returns
range - ANS a measure of an asset's risk, which is found by subtracting the return associated
with the pessimistic outcome from the return associated with the optimistic outcome
probability - ANS the chance that a given outcome will occur
probability distribution - ANS a model that relates probabilities to the associated outcomes
The variance of an investment's returns is a measure of the: - ANS volatility of the rates of
return.
The standard deviations of individual stocks are generally higher than the standard deviation of
the market portfolio because individual stocks: - ANS have no diversification risk
The benefits of portfolio diversification are highest when the individual securities have returns
that: - ANS are uncorrelated with the rest of the portfolio
@2026 ALLRIGHTS RESERVED 2
