FINA 3311 Test 1 Questions with Correct Answers Latest Update 2025/2026
5%
(Rate of Interest + Inflation + maturity risk premium) - Answers 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?
yield curve - Answers What is the term for a graphical representation of the relationship
between interest rates and the maturities of debt securities?
underwriting, distributing, and advising - Answers The investment banker performs what three
basic functions?
a hybrid market, allowing for
face−to−face
trading on the floor of the stock exchange in addition to automated, electronic trading. -
Answers The New York Stock Exchange (NYSE) is
secondary market. - Answers John calls his stockbroker and instructs him to purchase 100
shares of Microsoft Corporation common stock. This transaction occurs in the
allowing investors to submit bids saying how many shares they'd like to buy and at what price. -
Answers A "Dutch auction" was used by Google to raise money in 2004. A Dutch auction
involves
indirect transfer using the venture capital firm. - Answers Three ways that savings can be
transferred through the financial markets include all of the following EXCEPT
Aaa−rated
corporate bond maturing in 2019 not actively traded - Answers Which of the following securities
will likely have the highest liquidity premium?
Ford Motor Company sells a new issue of common stock to raise funds through a public
offering. - Answers Which of the following is an example of both a capital market and a primary
market transaction?
default−risk
, premium - Answers Which of the following premiums is NOT factored into the price of a
long−term
Treasury bond?
maximize shareholder wealth. - Answers The long-run goal of the firm is to
Project B may be preferred to Project A if the opportunity cost of money is high enough. -
Answers 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
The stock price is likely to be unaffected because the stock market is efficient. - Answers
Profits are down so the controller decides to change the corporation's accounting policy relating
to inventory costing. The change will allow the corporation to report higher income and higher
assets, although the physical inventory has not changed. Which of the following statements is
MOST correct?
is concerned with ethics because unethical behavior destroys trust, and businesses cannot
function without a certain degree of trust. - Answers A corporate financial manager trying to
maximize shareholder value
capital budgeting, capital structure decisions, and working capital management. - Answers The
three basic types of issues addressed by the study of finance are
managing cash flows as they arise in its
day−to−day operations. - Answers Working capital management is concerned with
long−term investments a firm should undertake. - Answers Capital budgeting is concerned with
the capital structure decision. - Answers Determining the best way to raise money to fund a
firm's
long−term
investments is called
limited partners who do not participate in the management of the business. - Answers A limited
partnership provides limited liability to
corporation - Answers Which of the following forms of business organization limits the liability
of owners?
standardization of all debt agreements - Answers Which of the following is NOT a benefit
provided by the existence of organized security exchanges?
best efforts - Answers The investment banker does NOT underwrite the securities to be issued
5%
(Rate of Interest + Inflation + maturity risk premium) - Answers 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?
yield curve - Answers What is the term for a graphical representation of the relationship
between interest rates and the maturities of debt securities?
underwriting, distributing, and advising - Answers The investment banker performs what three
basic functions?
a hybrid market, allowing for
face−to−face
trading on the floor of the stock exchange in addition to automated, electronic trading. -
Answers The New York Stock Exchange (NYSE) is
secondary market. - Answers John calls his stockbroker and instructs him to purchase 100
shares of Microsoft Corporation common stock. This transaction occurs in the
allowing investors to submit bids saying how many shares they'd like to buy and at what price. -
Answers A "Dutch auction" was used by Google to raise money in 2004. A Dutch auction
involves
indirect transfer using the venture capital firm. - Answers Three ways that savings can be
transferred through the financial markets include all of the following EXCEPT
Aaa−rated
corporate bond maturing in 2019 not actively traded - Answers Which of the following securities
will likely have the highest liquidity premium?
Ford Motor Company sells a new issue of common stock to raise funds through a public
offering. - Answers Which of the following is an example of both a capital market and a primary
market transaction?
default−risk
, premium - Answers Which of the following premiums is NOT factored into the price of a
long−term
Treasury bond?
maximize shareholder wealth. - Answers The long-run goal of the firm is to
Project B may be preferred to Project A if the opportunity cost of money is high enough. -
Answers 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
The stock price is likely to be unaffected because the stock market is efficient. - Answers
Profits are down so the controller decides to change the corporation's accounting policy relating
to inventory costing. The change will allow the corporation to report higher income and higher
assets, although the physical inventory has not changed. Which of the following statements is
MOST correct?
is concerned with ethics because unethical behavior destroys trust, and businesses cannot
function without a certain degree of trust. - Answers A corporate financial manager trying to
maximize shareholder value
capital budgeting, capital structure decisions, and working capital management. - Answers The
three basic types of issues addressed by the study of finance are
managing cash flows as they arise in its
day−to−day operations. - Answers Working capital management is concerned with
long−term investments a firm should undertake. - Answers Capital budgeting is concerned with
the capital structure decision. - Answers Determining the best way to raise money to fund a
firm's
long−term
investments is called
limited partners who do not participate in the management of the business. - Answers A limited
partnership provides limited liability to
corporation - Answers Which of the following forms of business organization limits the liability
of owners?
standardization of all debt agreements - Answers Which of the following is NOT a benefit
provided by the existence of organized security exchanges?
best efforts - Answers The investment banker does NOT underwrite the securities to be issued
