D364 FINC 3101
Financial Management I
FA REVIEW 1
© 2024/2025
,1. Multiple Choice: What is the primary goal of financial
management?
a) Maximizing profits
b) Minimizing risks
c) Maximizing shareholder wealth
d) Minimizing operational costs
Correct Answer: c) Maximizing shareholder wealth
Rationale: The primary goal of financial management is to
maximize shareholder wealth, as it reflects the overall value of the
company and the efficiency of management in generating returns.
2. Fill-in-the-Blank: The __________ model is used to determine
the discount rate for future cash flows in order to calculate the
present value of a project or investment.
Correct Answer: Capital Asset Pricing Model (CAPM)
Rationale: The CAPM is utilized to estimate the required return
on equity or investments, reflecting the risk compared to the return
of the market.
3. True/False: The Modigliani-Miller theorem states that, in the
absence of taxes, bankruptcy costs, agency costs, and asymmetric
information, the value of a firm is unaffected by how that firm is
financed.
© 2024/2025
, Correct Answer: True
Rationale: The Modigliani-Miller theorem posits that under
certain market conditions, the capital structure of a company does
not affect its overall value.
4. Multiple Response: Which of the following are considered
derivative instruments?
a) Options
b) Bonds
c) Futures contracts
d) Stocks
Correct Answers: a) Options, c) Futures contracts
Rationale: Options and futures are financial derivatives that
derive their value from an underlying asset, whereas bonds and
stocks are primary securities.
5. Multiple Choice: In the context of portfolio theory,
diversification is most effective when the correlation between asset
returns is:
a) High and positive
b) High and negative
c) Low and positive
d) Zero or negative
© 2024/2025
Financial Management I
FA REVIEW 1
© 2024/2025
,1. Multiple Choice: What is the primary goal of financial
management?
a) Maximizing profits
b) Minimizing risks
c) Maximizing shareholder wealth
d) Minimizing operational costs
Correct Answer: c) Maximizing shareholder wealth
Rationale: The primary goal of financial management is to
maximize shareholder wealth, as it reflects the overall value of the
company and the efficiency of management in generating returns.
2. Fill-in-the-Blank: The __________ model is used to determine
the discount rate for future cash flows in order to calculate the
present value of a project or investment.
Correct Answer: Capital Asset Pricing Model (CAPM)
Rationale: The CAPM is utilized to estimate the required return
on equity or investments, reflecting the risk compared to the return
of the market.
3. True/False: The Modigliani-Miller theorem states that, in the
absence of taxes, bankruptcy costs, agency costs, and asymmetric
information, the value of a firm is unaffected by how that firm is
financed.
© 2024/2025
, Correct Answer: True
Rationale: The Modigliani-Miller theorem posits that under
certain market conditions, the capital structure of a company does
not affect its overall value.
4. Multiple Response: Which of the following are considered
derivative instruments?
a) Options
b) Bonds
c) Futures contracts
d) Stocks
Correct Answers: a) Options, c) Futures contracts
Rationale: Options and futures are financial derivatives that
derive their value from an underlying asset, whereas bonds and
stocks are primary securities.
5. Multiple Choice: In the context of portfolio theory,
diversification is most effective when the correlation between asset
returns is:
a) High and positive
b) High and negative
c) Low and positive
d) Zero or negative
© 2024/2025
