FINA 3311 Exam 2 Questions with Correct Answers Latest Update 2025/2026
The present value of a single future sum
a) is generally larger than the future sum.
b) increases as the discount rate increases.
c) depends upon the number of discount periods.
d) increases as the number of discount periods increases. - Answers c. depends upon the
number of discount periods.
You decide you want your child to be a millionaire. You have a son today and you deposit
$10,000 in an investment account that earns 7% per year. The money in the account will be
distributed to your son whenever the total reaches $1,500,000. How old will your son be when
he gets the money (rounded to the nearest year)?
a. 82 years
b. 49 years
c. 60 years
d. 74 years - Answers d. 74
If the future value of annuity A is greater than the future value of annuity B, then the present
value of annuity A must also be greater than the present value of annuity B.
True
False - Answers true
For a given stated interest rate, an investor would receive a greater future value with daily
compounding as opposed to monthly compounding.
True
, False - Answers true
You are currently earning 12% compounded semiannually. Your investment company is
switching all accounts to daily compounding. What rate will give you the same effective annual
rate of return as you are receiving now?
a. 11.89%
b. 11.66%
c. 10.83%
d. 10.97% - Answers b. 11.66%
Assume that you have $100,000 invested in a stock that is returning 14%, $150,000 invested in a
stock that is returning 18%, and $200,000 invested in a stock that is returning 15%. What is the
expected return of your portfolio?
a. 15.78%
b. 15.67%
c. 13.25%
d. 14.97% - Answers a. 15.78%
Adding stocks to a bond portfolio will increase the riskiness of the portfolio because stocks
have higher standard deviations of returns than bonds.
True
False - Answers false
Which of the following statements is MOST correct concerning diversification and risk?
a) Diversification is mainly achieved by the selection of individual securities for each type of
asset held in a portfolio.
b) Asset allocation is important for pension funds but not for individual investors.
c) Large company stocks and small company stocks together in a portfolio lead to dramatic
The present value of a single future sum
a) is generally larger than the future sum.
b) increases as the discount rate increases.
c) depends upon the number of discount periods.
d) increases as the number of discount periods increases. - Answers c. depends upon the
number of discount periods.
You decide you want your child to be a millionaire. You have a son today and you deposit
$10,000 in an investment account that earns 7% per year. The money in the account will be
distributed to your son whenever the total reaches $1,500,000. How old will your son be when
he gets the money (rounded to the nearest year)?
a. 82 years
b. 49 years
c. 60 years
d. 74 years - Answers d. 74
If the future value of annuity A is greater than the future value of annuity B, then the present
value of annuity A must also be greater than the present value of annuity B.
True
False - Answers true
For a given stated interest rate, an investor would receive a greater future value with daily
compounding as opposed to monthly compounding.
True
, False - Answers true
You are currently earning 12% compounded semiannually. Your investment company is
switching all accounts to daily compounding. What rate will give you the same effective annual
rate of return as you are receiving now?
a. 11.89%
b. 11.66%
c. 10.83%
d. 10.97% - Answers b. 11.66%
Assume that you have $100,000 invested in a stock that is returning 14%, $150,000 invested in a
stock that is returning 18%, and $200,000 invested in a stock that is returning 15%. What is the
expected return of your portfolio?
a. 15.78%
b. 15.67%
c. 13.25%
d. 14.97% - Answers a. 15.78%
Adding stocks to a bond portfolio will increase the riskiness of the portfolio because stocks
have higher standard deviations of returns than bonds.
True
False - Answers false
Which of the following statements is MOST correct concerning diversification and risk?
a) Diversification is mainly achieved by the selection of individual securities for each type of
asset held in a portfolio.
b) Asset allocation is important for pension funds but not for individual investors.
c) Large company stocks and small company stocks together in a portfolio lead to dramatic
