FINA 3315 MID-TERM REVIEW EXAM
QUESTIONS AND ANSWERS 100% PASS
2026/2027
Which of the following statements is(are) correct concerning hedge funds?
I. They are highly regulated.
II. They hedge all positions to limit risks.
III. Management and other fees are extremely low compared to other types of funds.
IV. Access is limited to institutions and high net worth or high income individuals. - ANS IV
only
Most bonds pay interest quarterly. - ANS FALSE
A cyclical company tends to: - ANS have earnings that track the overall economy.
In an inflationary environment, the interest payments on Treasury inflation − indexed
obligations increase over time. - ANS TRUE
Investors who buy mutual funds that have had large gains over the last few years are exhibiting
a tendency known as - ANS representativeness
The bond market is considered bearish when - ANS market interest rates are high or rising.
@2026 ALLRIGHTS RESERVED 1
,Behavioral finance suggests that investors react to new information in an efficient manner such
that security prices accurately reflect the new information. - ANS FALSE
Eurodollar bonds are - ANS purchased and redeemed in dollars but issued by entities outside
the U.S.
Socially responsible funds are distinguished from other mutual funds because they -
ANS invest only in companies that meet specified moral, ethical, or environmental standards.
Yield curves for corporate and government securities have similar shapes, but the corporate
rates track below the government rates. - ANS FALSE
Bonds with one of the top four ratings (Aaa through Baa, or AAA through BBB) are designated as
- ANS investment grade bonds.
A bond with 14 years to maturity and a coupon rate of 6.375% has a yield-to-maturity (YTM) of
4.5%. Assuming the bond's YTM remains constant, the bond's value as it approaches maturity
will most likely: - ANS decrease
Most exchange − traded funds are index funds - ANS TRUE
Which of the following statements is(are) correct concerning exchange − traded funds (ETFs)?
I. You can buy and sell ETFs any time during trading hours.
II. ETFs are actively managed.
III. ETFs have high portfolio turnover rates.
IV. ETFs rarely distribute any capital gains. - ANS I and IV only
@2026 ALLRIGHTS RESERVED 2
,Changes in the inflation rate have a direct and pronounced effect on market interest rates. -
ANS TRUE
An efficient market reflects - ANS all information including predictions about future
information.
The confidence index indicates - ANS bond investors ' perceptions of risk in the economy
Which one of the following statements concerning mutual funds is correct? - ANS The mutual
fund industry is the largest financial intermediary in the United States.
Debt securities issued by the Federal Home Loan Bank, the Student Loan Marketing Association
and the Government National Mortgage Association are known as - ANS agency bonds.
Trading in closed − end investment companies takes place between investors in the open
market - ANS TRUE
The yield curve depicts the relationship between a bond's yield to maturity and its -
ANS term to maturity
Government securities money funds are structured to eliminate - ANS default risk
Investors are generally well advised to avoid mutual funds with - ANS consistently poor
historical performance
One characteristic of bond funds is the - ANS fluctuation in value in response to changing
interest rates
@2026 ALLRIGHTS RESERVED 3
, Investors who seek triple (federal, state, and local) tax − free income should invest in ________
bond funds - ANS single − state municipal
Municipal bonds are most attractive to residents of states with high income tax rates. -
ANS TRUE
The most important lesson investors can learn from behavioral finance is - ANS how to avoid
letting their emotions and biases affect their investment decisions.
Which one of the following statements is correct concerning the mutual fund cash ratio
(MFCR)? - ANS A low MFCR indicates that fund managers might be forced to sell securities
should investors wish to withdraw funds.
Index funds merely attempt to match the performance of some benchmark, not to outperform
it. - ANS TRUE
The on balance volume (OBV) indicator - ANS indicates an up market when heavy volume
accompanies price increases
Bonhomme Co. issued $1,000 par value bonds with a 6% coupon rate, convertible into 25 share
of Bonhomme common stock. When the bonds were issued the stock traded at $25 per share.
The stock is now at $42 per share and pays a $0.10 per share annual dividend. In the near future
- ANS The issuing company will call the bonds and bondholders will convert them to common
shares.
An increase in the market rate of return on an outstanding bond will - ANS decrease the bond
price.
@2026 ALLRIGHTS RESERVED 4
QUESTIONS AND ANSWERS 100% PASS
2026/2027
Which of the following statements is(are) correct concerning hedge funds?
I. They are highly regulated.
II. They hedge all positions to limit risks.
III. Management and other fees are extremely low compared to other types of funds.
IV. Access is limited to institutions and high net worth or high income individuals. - ANS IV
only
Most bonds pay interest quarterly. - ANS FALSE
A cyclical company tends to: - ANS have earnings that track the overall economy.
In an inflationary environment, the interest payments on Treasury inflation − indexed
obligations increase over time. - ANS TRUE
Investors who buy mutual funds that have had large gains over the last few years are exhibiting
a tendency known as - ANS representativeness
The bond market is considered bearish when - ANS market interest rates are high or rising.
@2026 ALLRIGHTS RESERVED 1
,Behavioral finance suggests that investors react to new information in an efficient manner such
that security prices accurately reflect the new information. - ANS FALSE
Eurodollar bonds are - ANS purchased and redeemed in dollars but issued by entities outside
the U.S.
Socially responsible funds are distinguished from other mutual funds because they -
ANS invest only in companies that meet specified moral, ethical, or environmental standards.
Yield curves for corporate and government securities have similar shapes, but the corporate
rates track below the government rates. - ANS FALSE
Bonds with one of the top four ratings (Aaa through Baa, or AAA through BBB) are designated as
- ANS investment grade bonds.
A bond with 14 years to maturity and a coupon rate of 6.375% has a yield-to-maturity (YTM) of
4.5%. Assuming the bond's YTM remains constant, the bond's value as it approaches maturity
will most likely: - ANS decrease
Most exchange − traded funds are index funds - ANS TRUE
Which of the following statements is(are) correct concerning exchange − traded funds (ETFs)?
I. You can buy and sell ETFs any time during trading hours.
II. ETFs are actively managed.
III. ETFs have high portfolio turnover rates.
IV. ETFs rarely distribute any capital gains. - ANS I and IV only
@2026 ALLRIGHTS RESERVED 2
,Changes in the inflation rate have a direct and pronounced effect on market interest rates. -
ANS TRUE
An efficient market reflects - ANS all information including predictions about future
information.
The confidence index indicates - ANS bond investors ' perceptions of risk in the economy
Which one of the following statements concerning mutual funds is correct? - ANS The mutual
fund industry is the largest financial intermediary in the United States.
Debt securities issued by the Federal Home Loan Bank, the Student Loan Marketing Association
and the Government National Mortgage Association are known as - ANS agency bonds.
Trading in closed − end investment companies takes place between investors in the open
market - ANS TRUE
The yield curve depicts the relationship between a bond's yield to maturity and its -
ANS term to maturity
Government securities money funds are structured to eliminate - ANS default risk
Investors are generally well advised to avoid mutual funds with - ANS consistently poor
historical performance
One characteristic of bond funds is the - ANS fluctuation in value in response to changing
interest rates
@2026 ALLRIGHTS RESERVED 3
, Investors who seek triple (federal, state, and local) tax − free income should invest in ________
bond funds - ANS single − state municipal
Municipal bonds are most attractive to residents of states with high income tax rates. -
ANS TRUE
The most important lesson investors can learn from behavioral finance is - ANS how to avoid
letting their emotions and biases affect their investment decisions.
Which one of the following statements is correct concerning the mutual fund cash ratio
(MFCR)? - ANS A low MFCR indicates that fund managers might be forced to sell securities
should investors wish to withdraw funds.
Index funds merely attempt to match the performance of some benchmark, not to outperform
it. - ANS TRUE
The on balance volume (OBV) indicator - ANS indicates an up market when heavy volume
accompanies price increases
Bonhomme Co. issued $1,000 par value bonds with a 6% coupon rate, convertible into 25 share
of Bonhomme common stock. When the bonds were issued the stock traded at $25 per share.
The stock is now at $42 per share and pays a $0.10 per share annual dividend. In the near future
- ANS The issuing company will call the bonds and bondholders will convert them to common
shares.
An increase in the market rate of return on an outstanding bond will - ANS decrease the bond
price.
@2026 ALLRIGHTS RESERVED 4
