Western Governors University
ECITCARP • 412C
WGU College of Business — Financial Management
A NEW KIND OF U.
EST. 1997
C214 — Financial Management Practice Questions
CO M P R E H E N S I V E F I N A N C E CO N C E PTS A SS E SS M E N T
INSTITUTION Western Governors University EXAM CODE WGU-C214-FIN-2026
PROGRAM BS Business — Financial Management ACADEMIC YEAR
EXAM TITLE C214 — Financial Management Practice TOTAL QUESTIONS 79 Questions
Questions
COURSE TITLE Financial Management (C214) FORMAT Multiple Choice — Select the Single Best
Answer
EXAMINATION INSTRUCTIONS
▸ Select the single best answer for each question.
▸ Questions cover corporate finance: stock valuation, bond markets, capital budgeting, financial ratios, cash flow analysis, CAPM,
capital structure, and international finance.
▸ Distinguish carefully between related concepts such as systematic vs. unsystematic risk, primary vs. secondary markets, and
operating vs. financial leverage.
▸ Correct answers and detailed rationales appear below each question for comprehensive review.
▸ All content is derived from WGU C214 Financial Management practice question bank.
SECTION I — CORPORATE FINANCE, VALUATION & CAPITAL MARKETS Questions 1 – 79
1. The goal of a public corporation is to:
A. Maximize profit
B. Serve societal goals
C. Maximize stock price
D. Sell the best product
CORRECT ANSWER C — Maximize stock price
RATIONALE The primary goal of a public corporation is to maximize shareholder wealth, which is measured by stock price.
While profit maximization (Option A) seems related, it is short-term focused and ignores timing and risk. Stock
price reflects the present value of all expected future cash flows to shareholders.
,2. What does Beta measure?
A. The yield on the S&P 500
B. The relative riskiness of an individual stock
C. Indicates the market value of the stock
D. Intrinsic value of the stock
CORRECT ANSWER B — The relative riskiness of an individual stock
RATIONALE Beta measures systematic risk — the volatility of an individual stock relative to the overall market. A beta of
1.0 means the stock moves with the market; beta > 1.0 indicates higher volatility (riskier); beta < 1.0 indicates
lower volatility. Beta is a key input in the Capital Asset Pricing Model (CAPM).
3. What determines the prices of financial securities?
A. PV of expected cash flow to investors
B. Firm's earnings per share
C. Financial analyst recommendations
D. Financial Statements
CORRECT ANSWER A — PV of expected cash flow to investors
RATIONALE The fundamental principle of finance: the value of any financial asset equals the present value (PV) of all
expected future cash flows discounted at the appropriate risk-adjusted rate. EPS (Option B), analyst
recommendations (Option C), and financial statements (Option D) are inputs to valuation, not determinants
of price.
4. Which does NOT affect the required yield on a bond?
A. Riskiness of the issuer
B. Collateralization
C. Treasury yields
D. Coupon rate
CORRECT ANSWER D — Coupon rate
RATIONALE The coupon rate is a feature of the bond contract — it determines the dollar interest payments but does not
affect the required yield (market interest rate). Required yield is affected by the risk-free rate (Treasury yields),
the issuer's credit risk, and whether the bond is secured (collateralized). The coupon rate is fixed at issuance.
5. What factors affect the dealer bid/ask spread?
A. Volatility of security prices
B. Frequency of security trading
C. Maturity of stock issue
D. Both A and B
CORRECT ANSWER D — Both A and B
RATIONALE The bid/ask spread compensates dealers for the risk of holding inventory. Higher price volatility (Option A)
increases the risk of loss while holding the security, widening the spread. Lower trading frequency (Option B)
means less liquidity and higher inventory holding costs, also widening the spread. Both factors directly
impact the spread.
, 6. The primary market is characterized by:
A. Only large corporations participate
B. Trading on the New York Stock Exchange
C. Corporations are raising cash
D. Security is traded on NASDAQ
CORRECT ANSWER C — Corporations are raising cash
RATIONALE In the primary market, securities are sold for the first time (IPOs, new bond issues) and the issuing
corporation receives the proceeds directly. This is capital formation — corporations raising cash. Options B
and D describe the secondary market (NYSE, NASDAQ) where investors trade existing securities among
themselves.
7. Junk bonds are those whose rating is below:
A. AAA
B. AA
C. A
D. BBB
CORRECT ANSWER D — BBB
RATIONALE Bonds rated below BBB- (S&P) or Baa3 (Moody's) are classified as speculative-grade or "junk" bonds.
Investment-grade bonds are rated BBB- or higher. Junk bonds offer higher yields to compensate for
significantly higher default risk. The cutoff between investment grade and speculative grade is the BBB/BA
divide.
8. Diversification protects against:
A. Recession
B. Exchange rate risk
C. Individual firm risk
D. Inflation risk
CORRECT ANSWER C — Individual firm risk
RATIONALE Diversification eliminates unsystematic (firm-specific/idiosyncratic) risk by spreading investments across
many securities. However, it cannot eliminate systematic risk — market-wide factors like recession (Option A),
exchange rates (Option B), and inflation (Option D) affect all stocks and cannot be diversified away.
9. Why is stock valuation so difficult?
A. Interpreting financial statements
B. Estimating future profits
C. Finding price quotes
D. Conflicting analyst advice
CORRECT ANSWER B — Estimating future profits
RATIONALE Stock valuation requires estimating future cash flows (profits/dividends) into perpetuity. This is inherently
uncertain because future profits depend on countless variables — competition, technology, regulation,
consumer preferences, and macroeconomic conditions. Financial statements (Option A) reflect the past, not
the future.
ECITCARP • 412C
WGU College of Business — Financial Management
A NEW KIND OF U.
EST. 1997
C214 — Financial Management Practice Questions
CO M P R E H E N S I V E F I N A N C E CO N C E PTS A SS E SS M E N T
INSTITUTION Western Governors University EXAM CODE WGU-C214-FIN-2026
PROGRAM BS Business — Financial Management ACADEMIC YEAR
EXAM TITLE C214 — Financial Management Practice TOTAL QUESTIONS 79 Questions
Questions
COURSE TITLE Financial Management (C214) FORMAT Multiple Choice — Select the Single Best
Answer
EXAMINATION INSTRUCTIONS
▸ Select the single best answer for each question.
▸ Questions cover corporate finance: stock valuation, bond markets, capital budgeting, financial ratios, cash flow analysis, CAPM,
capital structure, and international finance.
▸ Distinguish carefully between related concepts such as systematic vs. unsystematic risk, primary vs. secondary markets, and
operating vs. financial leverage.
▸ Correct answers and detailed rationales appear below each question for comprehensive review.
▸ All content is derived from WGU C214 Financial Management practice question bank.
SECTION I — CORPORATE FINANCE, VALUATION & CAPITAL MARKETS Questions 1 – 79
1. The goal of a public corporation is to:
A. Maximize profit
B. Serve societal goals
C. Maximize stock price
D. Sell the best product
CORRECT ANSWER C — Maximize stock price
RATIONALE The primary goal of a public corporation is to maximize shareholder wealth, which is measured by stock price.
While profit maximization (Option A) seems related, it is short-term focused and ignores timing and risk. Stock
price reflects the present value of all expected future cash flows to shareholders.
,2. What does Beta measure?
A. The yield on the S&P 500
B. The relative riskiness of an individual stock
C. Indicates the market value of the stock
D. Intrinsic value of the stock
CORRECT ANSWER B — The relative riskiness of an individual stock
RATIONALE Beta measures systematic risk — the volatility of an individual stock relative to the overall market. A beta of
1.0 means the stock moves with the market; beta > 1.0 indicates higher volatility (riskier); beta < 1.0 indicates
lower volatility. Beta is a key input in the Capital Asset Pricing Model (CAPM).
3. What determines the prices of financial securities?
A. PV of expected cash flow to investors
B. Firm's earnings per share
C. Financial analyst recommendations
D. Financial Statements
CORRECT ANSWER A — PV of expected cash flow to investors
RATIONALE The fundamental principle of finance: the value of any financial asset equals the present value (PV) of all
expected future cash flows discounted at the appropriate risk-adjusted rate. EPS (Option B), analyst
recommendations (Option C), and financial statements (Option D) are inputs to valuation, not determinants
of price.
4. Which does NOT affect the required yield on a bond?
A. Riskiness of the issuer
B. Collateralization
C. Treasury yields
D. Coupon rate
CORRECT ANSWER D — Coupon rate
RATIONALE The coupon rate is a feature of the bond contract — it determines the dollar interest payments but does not
affect the required yield (market interest rate). Required yield is affected by the risk-free rate (Treasury yields),
the issuer's credit risk, and whether the bond is secured (collateralized). The coupon rate is fixed at issuance.
5. What factors affect the dealer bid/ask spread?
A. Volatility of security prices
B. Frequency of security trading
C. Maturity of stock issue
D. Both A and B
CORRECT ANSWER D — Both A and B
RATIONALE The bid/ask spread compensates dealers for the risk of holding inventory. Higher price volatility (Option A)
increases the risk of loss while holding the security, widening the spread. Lower trading frequency (Option B)
means less liquidity and higher inventory holding costs, also widening the spread. Both factors directly
impact the spread.
, 6. The primary market is characterized by:
A. Only large corporations participate
B. Trading on the New York Stock Exchange
C. Corporations are raising cash
D. Security is traded on NASDAQ
CORRECT ANSWER C — Corporations are raising cash
RATIONALE In the primary market, securities are sold for the first time (IPOs, new bond issues) and the issuing
corporation receives the proceeds directly. This is capital formation — corporations raising cash. Options B
and D describe the secondary market (NYSE, NASDAQ) where investors trade existing securities among
themselves.
7. Junk bonds are those whose rating is below:
A. AAA
B. AA
C. A
D. BBB
CORRECT ANSWER D — BBB
RATIONALE Bonds rated below BBB- (S&P) or Baa3 (Moody's) are classified as speculative-grade or "junk" bonds.
Investment-grade bonds are rated BBB- or higher. Junk bonds offer higher yields to compensate for
significantly higher default risk. The cutoff between investment grade and speculative grade is the BBB/BA
divide.
8. Diversification protects against:
A. Recession
B. Exchange rate risk
C. Individual firm risk
D. Inflation risk
CORRECT ANSWER C — Individual firm risk
RATIONALE Diversification eliminates unsystematic (firm-specific/idiosyncratic) risk by spreading investments across
many securities. However, it cannot eliminate systematic risk — market-wide factors like recession (Option A),
exchange rates (Option B), and inflation (Option D) affect all stocks and cannot be diversified away.
9. Why is stock valuation so difficult?
A. Interpreting financial statements
B. Estimating future profits
C. Finding price quotes
D. Conflicting analyst advice
CORRECT ANSWER B — Estimating future profits
RATIONALE Stock valuation requires estimating future cash flows (profits/dividends) into perpetuity. This is inherently
uncertain because future profits depend on countless variables — competition, technology, regulation,
consumer preferences, and macroeconomic conditions. Financial statements (Option A) reflect the past, not
the future.
