FINA 3315 EXAM 2 QUESTIONS AND
ANSWERS 100% PASS 2026/2027
The required rate of return on the Cosmos Corporation's common stock is 10%, the current real
rate of return in the market is 1%, and the inflation rate is 3%. In this case, the risk premium
associated with Cosmos stock is - ANS 6%
in the real world, most of the assets available to investors - ANS Tend to be somewhat
positively correlated.
When an investor places a_ order he agrees to buy or sell at the best available price when the
trade is executed. - ANS market
the present value of $1000 discounted at the rate of 5% per year, to be received at the end of 3
years is equal to - ANS $1,000/(1.05)^3
Research indicates that investors who closely monitor their portfolios and trade quickly in
response to minor fluctuations in price - ANS underperform those who hold investments for
the long- term and trade infrequently
compound interest is interest paid not only on the initial investment but also on any interest
earned after the initial investment. - ANS true
@2026 ALLRIGHTS RESERVED 1
,the purchase of stock with cash in the hope of earning a capital gain is known as taking a -
ANS long position in the stock
short- term securities are bought and sold in the - ANS money market
the efficient frontier - ANS represents the best attainable tradeoff between risk and return
correlation is the measure of the relationship between two series of numbers - ANS true
historically, what is the correct ranking of the following securities from lowest rate of return to
the highest? - ANS short- term government bills, long-term government bonds, stocks
Which one of the following statements concerning the primary market is correct? - ANS the
first public sale of a company's stock is called an IPO
One feature that mutual funds and exchange traded funds have in common is - ANS They
invest in broadly diversified porfortlios of securities
liquidity risk is defined as the risk of - ANS not being able to sell an investment conveniently
and at a reasonable price.
analysts commonly use the_ to measure market return. - ANS the Standard & Poor's 500
index
Charting is the technique of - ANS plotting the performance of a security over time.
@2026 ALLRIGHTS RESERVED 2
, Two assets have a coefficient of correlation of -.4. - ANS combining these assets will reduce
risk
Investments advisors are legally responsible for losses incurred by their clients. - ANS false
The holding period return (HPR) can appropriately be used to - ANS compare returns among
investments that are held for the same period of time.
if there is no relationship between the rates of return of two assets over time, these assets are -
ANS uncorrelated
Negatively correlated assets reduce risk more than positively correlated assets. - ANS true
stocks purchased in the secondary market are purchased - ANS from other investors
IPOs are typically underpriced so that the price rises during the first few days of trading. -
ANS true
Mcdonald's stock is now selling for $92 per share. Kim wants to buy 100 shares but only if she
can do so at $90 or less. She should place a(n) - ANS limit order
A business has strong sales and profits, but its stock price falls anyway because stock prices in
general are declining. This is an example of - ANS market risk
Each of the following investments produces the same rate of return. Which one has the greatest
amount of risk? - ANS investment D with a standard deviation of 19%
@2026 ALLRIGHTS RESERVED 3
ANSWERS 100% PASS 2026/2027
The required rate of return on the Cosmos Corporation's common stock is 10%, the current real
rate of return in the market is 1%, and the inflation rate is 3%. In this case, the risk premium
associated with Cosmos stock is - ANS 6%
in the real world, most of the assets available to investors - ANS Tend to be somewhat
positively correlated.
When an investor places a_ order he agrees to buy or sell at the best available price when the
trade is executed. - ANS market
the present value of $1000 discounted at the rate of 5% per year, to be received at the end of 3
years is equal to - ANS $1,000/(1.05)^3
Research indicates that investors who closely monitor their portfolios and trade quickly in
response to minor fluctuations in price - ANS underperform those who hold investments for
the long- term and trade infrequently
compound interest is interest paid not only on the initial investment but also on any interest
earned after the initial investment. - ANS true
@2026 ALLRIGHTS RESERVED 1
,the purchase of stock with cash in the hope of earning a capital gain is known as taking a -
ANS long position in the stock
short- term securities are bought and sold in the - ANS money market
the efficient frontier - ANS represents the best attainable tradeoff between risk and return
correlation is the measure of the relationship between two series of numbers - ANS true
historically, what is the correct ranking of the following securities from lowest rate of return to
the highest? - ANS short- term government bills, long-term government bonds, stocks
Which one of the following statements concerning the primary market is correct? - ANS the
first public sale of a company's stock is called an IPO
One feature that mutual funds and exchange traded funds have in common is - ANS They
invest in broadly diversified porfortlios of securities
liquidity risk is defined as the risk of - ANS not being able to sell an investment conveniently
and at a reasonable price.
analysts commonly use the_ to measure market return. - ANS the Standard & Poor's 500
index
Charting is the technique of - ANS plotting the performance of a security over time.
@2026 ALLRIGHTS RESERVED 2
, Two assets have a coefficient of correlation of -.4. - ANS combining these assets will reduce
risk
Investments advisors are legally responsible for losses incurred by their clients. - ANS false
The holding period return (HPR) can appropriately be used to - ANS compare returns among
investments that are held for the same period of time.
if there is no relationship between the rates of return of two assets over time, these assets are -
ANS uncorrelated
Negatively correlated assets reduce risk more than positively correlated assets. - ANS true
stocks purchased in the secondary market are purchased - ANS from other investors
IPOs are typically underpriced so that the price rises during the first few days of trading. -
ANS true
Mcdonald's stock is now selling for $92 per share. Kim wants to buy 100 shares but only if she
can do so at $90 or less. She should place a(n) - ANS limit order
A business has strong sales and profits, but its stock price falls anyway because stock prices in
general are declining. This is an example of - ANS market risk
Each of the following investments produces the same rate of return. Which one has the greatest
amount of risk? - ANS investment D with a standard deviation of 19%
@2026 ALLRIGHTS RESERVED 3
