Course Introduction
Financial Management
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Financial Management is a comprehensive course that explores the principles and techniques essential for effective financial planning, analysis, and decision-making within organizations. Students will examine key topics such as time value of money, risk and return analysis, capital budgeting, cost of capital, financial statement analysis, and working capital management. By integrating theoretical concepts with practical applications, the course equips learners with the tools to evaluate investment opportunities, manage financial resources efficiently, and understand the impact of financial decisions on overall organizational strategy and performance.
Recommended Textbook
Fundamentals of Investments 8th Edition by Bradford Jordan
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20 Chapters
1925 Verified Questions
1925 Flashcards
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Page 2
Chapter 1: A Brief History of Risk and Return
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Sample Questions
Q1) Over the past five years,an investment produced annual returns of 16.5,21,-18,4,and 17 percent,respectively.What is the geometric average return?
A) 6.42 percent
B) 7.06 percent
C) 8.00 percent
D) 15.60 percent
E) 16.00 percent
Answer: B
Q2) The total dollar return on a share of stock is defined as the:
A) change in the price of the stock over a period of time.
B) dividend income divided by the beginning price per share.
C) capital gain or loss plus any dividend income.
D) change in the stock price divided by the original stock price.
E) annual dividend income received.
Answer: C
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Chapter 2: The Investment Process
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Sample Questions
Q1) Alfonso purchased 600 shares of Crosswinds,Inc.,stock on 60 percent margin when the stock was selling for $37 a share.The stock is currently selling for $32 a share.What is his current equity position?
A) $7,680
B) $8,880
C) $9,600
D) $10,320
E) $11,560
Answer: D
Q2) You purchased 800 shares of stock for $49.20 a share.The initial margin requirement is 65 percent and the maintenance margin is 35 percent.What is the lowest the stock price can go before you receive a margin call?
A) $9.27
B) $14.54
C) $17.22
D) $21.88
E) $26.49
Answer: E
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Chapter 3: Overview of Security Types
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Sample Questions
Q1) Futures contracts:
A) require payment in full at the time the contract is written.
B) can be resold.
C) establish the quantity to be exchanged but not the date of the exchange.
D) establish both the quantity to be exchanged and the exchange date but not the price.
E) are primary financial assets.
Answer: B
Q2) You purchased four call option contracts with a strike price of $40 and an option premium of $1.25.You closed your contract on the expiration date when the stock was selling for $42.50 a share.What is your total profit or loss on your option position?
A) -$50
B) -$10
C) $135
D) $385
E) $500
Answer: E
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5
Chapter 4: Mutual Funds and Other Investment Companies
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Sample Questions
Q1) Currently,the term "hedge fund" refers to:
A) any registered fund with a stated investment objective.
B) any unregistered fund pursuing any type of investment style.
C) any fund that equally invests in long and short positions.
D) any fund that adheres to a "market-neutral" investment strategy.
E) any private fund that has a minimum investment requirement of $1 million or more.
Q2) Which of the following can you do with an ETF that you cannot do with an open-end fund?
I.sell at mid-day prices
II.short sell
III.buy options on them
IV.resell
A) I and III only
B) II and III only
C) III and IV only
D) I, II, and III only
E) I, II, III, and IV
Q3) Which type of investor is most apt to purchase municipal bond funds and why?
Q4) What are the primary differences between an ETF and an ETN?
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Chapter 5: The Stock Market
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Sample Questions
Q1) The location on an exchange floor where a particular security trades is called a(n):
A) specialist's post.
B) broker's terminal.
C) floor spot.
D) exchange spot.
E) market pit.
Q2) The orders displayed on NASDAQ are placed by:
A) individuals on ECNs only.
B) market makers only.
C) both market makers and individuals on ECNs.
D) brokerage firms.
E) floor brokers.
Q3) Which one of the following prices will an individual investor receive if he or she sells shares of Intel?
A) bid
B) ask
C) issue
D) offer
E) Dutch
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Page 7
Chapter 6: Common Stock Valuation
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Sample Questions
Q1) Which one of the following models can be used to value the stock of a firm that maintains a one hundred percent retention ratio?
A) two-stage growth
B) residual income
C) perpetual dividend growth
D) supernormal growth
E) perpetual cash flow
Q2) Growth stocks are frequently described as having which one of the following characteristics?
A) high dividends
B) a value orientation
C) high P/E ratios
D) low cash flows per share
E) low retention ratios
Q3) An increase in the retention ratio will:
A) increase the dividends per share.
B) decrease a firm's sustainable rate of growth.
C) decrease the equity of a firm.
D) increase the dividend growth rate.
E) increase the value of a firm's stock.
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Chapter 7: Stock Price Behavior and Market Efficiency
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Sample Questions
Q1) In an efficient market,daily abnormal returns:
A) are very volatile.
B) reflect news within the past week.
C) reflect news since the prior trading day.
D) remain constant.
E) do not exist.
Q2) Dover Lumber announced last week that its unpopular CEO had resigned.In response to this announcement,the firm's stock price increased from $17 a share to $23 a share.The following day the price declined to $21 a share and has remained constant at that level.This is an example of a(n):
A) over-reaction and correction.
B) underpricing.
C) delayed reaction.
D) pre-activity action.
E) efficient market reaction.
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9
Chapter 8: Behavioral Finance and the Psychology of Investing
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Sample Questions
Q1) According to the theory of recency bias,investors tend to believe the financial markets will:
A) gravitate to their long-term average rates of return.
B) react over the next year in direct opposition to the performance of the prior year.
C) have a maximum of three years of positive annual returns before declining somewhat.
D) continue to perform as they have over the past couple of years.
E) tend to reverse direction at least every five years.
Q2) Loss aversion is defined as:
A) the inability to mentally acknowledge a loss on a security.
B) selling any security for less than the price paid to acquire it.
C) selling a security as soon as it has increased significantly in value.
D) the reluctance to sell a security after it has decreased in value.
E) the tendency to quickly sell any investment that has decreased in value.
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Chapter 9: Interest Rates
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Sample Questions
Q1) Which one of the following is a basis point?
A) 1 percent
B) 0.1 percent
C) 0.01 percent
D) 0.001 percent
E) 0.0001 percent
Q2) A bond has a face value of $30,000 and matures in 62 days.What is the bank discount yield if the bond is currently selling for $29,750?
A) 4.67 percent
B) 4.84 percent
C) 5.48 percent
D) 5.78 percent
E) 6.03 percent
Q3) Which one of the following facilitates international trade?
A) secured bond
B) Treasury security
C) banker's acceptance
D) commercial paper
E) Eurodollar loan
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Chapter 10: Bond Prices and Yields
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Sample Questions
Q1) The outstanding bonds of International Plastics mature in 6 years and pay semiannual interest payments of $33.50 on a $1,000 face value bond.The bonds are currently selling for $1,008.64.The coupon rate is ________ percent,the current yield is ________ percent,and the yield to maturity is ________ percent.
A) 6.70; 6.64; 6.52
B) 6.70; 6.78; 6.57
C) 6.64; 6.83; 6.57
D) 6.55; 6.86; 6.60
E) 6.55; 6.91; 6.75
Q2) According to Malkiel's theorems,bond prices and bond yields are:
A) inversely related.
B) uncorrelated.
C) positively related.
D) directly related.
E) independent of each other.
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Chapter 11: Diversification and Risky Asset Allocation
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Sample Questions
Q1) Terry has a portfolio comprised of two individual securities.Which one of the following computations that he might do is NOT a weighted average?
A) correlation between the securities
B) individual security expected return
C) portfolio expected return
D) portfolio variance
E) portfolio beta
Q2) There is a 35 percent probability that a particular stock will earn a 16 percent return and a 65 percent probability that it will earn 10 percent.What is the risk-free rate if the risk premium on the stock is 7.5 percent?
A) 4.20 percent
B) 4.60 percent
C) 5.20 percent
D) 5.40 percent
E) 5.80 percent
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13
Chapter 12: Return,Risk,and the Security Market Line
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Sample Questions
Q1) You own three stocks which have betas of 1.16,1.34,and 1.02.You would like to add a fourth security such that your portfolio beta will match that of the market.Given this situation,the new security:
A) must have a beta of 1.0.
B) must have a beta of zero.
C) could be a U.S. Treasury bill.
D) could have any beta greater than 1.0.
E) must have a portfolio weight of 50 percent or more.
Q2) Where will a security plot in relation to the security market line (SML)if it has a beta of 1.1 and is overvalued?
A) to the right of the overall market and above the SML
B) to the right of the overall market and below the SML
C) to the left of the overall market and above the SML
D) to the left of the overall market and below the SML
E) on the SML
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14
Chapter 13: Performance Evaluation and Risk Management
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Sample Questions
Q1) Which one of the following statements is true concerning VaR?
A) VaR ignores time.
B) VaR only applies to time periods of one year.
C) VaR applies only to time periods equal to or greater than one year.
D) VaR values can be computed for monthly time periods.
E) VaR is accurate only for time periods less than one year.
Q2) A Sharpe-optimal portfolio provides which one of the following for a given set of securities?
A) Jensen's Alpha
B) highest possible level of risk
C) highest level of return for a market-equivalent level of risk
D) highest excess return per unit of systematic risk
E) highest risk premium per unit of total risk
Q3) The Sharpe ratio measures a security's return relative to which one of the following?
A) total risk
B) diversifiable risk
C) market rate of return
D) risk-free rate
E) systematic risk
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Page 15
Chapter 14: Futures Contracts
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Sample Questions
Q1) You can withdraw funds from your margin account without closing your futures contract given which two of the following?
I.marking-to-market deducts funds from your margin account
II.marking-to-market adds funds to your margin account
III.margin balance after the withdrawal will exceed the maintenance margin requirement
IV.margin balance after the withdrawal will exceed the initial margin requirement
A) I and III only
B) I and IV only
C) II and III only
D) II and IV only
E) Funds cannot be withdrawn as long as the futures contract is outstanding.
Q2) A long hedge is the addition of which one of the following to a short position in the underlying asset?
A) short spot position
B) any spot position
C) any futures position
D) long futures position
E) either a short spot or short futures position
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Chapter 15: Stock Options
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Sample Questions
Q1) A decrease in which one of the following will increase the intrinsic value of a put option?
A) strike price
B) exercise price
C) option premium
D) time value
E) underlying stock price
Q2) You own three SPX call options with a strike of 1,800.What is the payoff at maturity for this option contract if the S&P 500 index is 1,820?
A) $0
B) $20
C) $200
D) $1,200
E) $6,000
Q3) Which one of the following values is discounted in the put-call parity formula?
A) call price
B) put price
C) stock price
D) strike price
E) option premium
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Chapter 16: Option Valuation
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Sample Questions
Q1) Given a set of variables,the Black-Scholes option pricing formula has a put option delta of -0.154.What is the call delta given these same variables?
A) -1.154
B) -0.846
C) 0.846
D) 1.154
E) The answer cannot be determined based on the information provided.
Q2) Which one of the following is an argument against repricing employee stock options?
A) ESO's are originally issued with positive intrinsic value so there's no reason to reprice.
B) Employees have more incentive when options are "under-water".
C) Repricing is a reward for failure.
D) It is unnecessary to reprice as ESOs expire quickly.
E) Repricing affects the market price of the firm's stock for all shareholders.
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18
Chapter 17: Projecting Cash Flow and Earnings
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Sample Questions
Q1) Baker Jewelry,Inc.has annual sales of $5.2 million and a gross profit margin of 60 percent.The operating expenses are $489,000 and depreciation is $155,000.Interest expense is $70,000 and the tax rate is 35 percent.What is the net income?
A) $1,002,980
B) $1,084,818
C) $1,227,980
D) $1,563,900
E) $2,385,000
Q2) A firm has net sales of $35,000,operating expenses of $6,100,depreciation of $1,700,and cost of goods sold of $18,300.What is the gross margin?
A) 31.1 percent
B) 35.4 percent
C) 47.7 percent
D) 52.9 percent
E) 59.2 percent
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Chapter 18: Corporate and Government Bonds
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Sample Questions
Q1) Which one of the following defines an in-the-money bond?
A) secured bond with collateral value that exceeds the bond's price
B) callable bond with a call price that exceeds the current market price
C) put bond with a put price that exceeds the current market price
D) convertible bond with a call price that exceeds its conversion value
E) convertible bond with a conversion value that exceeds its call price
Q2) A Treasury bond has a 3.4 percent coupon,a quoted price of 101:06,and 9 years to maturity.What is the yield to maturity?
A) 3.25 percent
B) 3.93 percent
C) 4.03 percent
D) 4.90 percent
E) 5.92 percent
Q3) Term bonds are defined as all bonds in a bond issue having which one of the following characteristics?
A) sequential maturity dates
B) serial maturity dates
C) multiple maturity dates
D) an identical maturity date
E) renewable maturity dates
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Chapter 19: Global Economic Activity and Industry Analysis
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Sample Questions
Q1) The CPI for this year was reported as 164.9,If inflation was 1.25 percent,what must the CPI have been last year?
A) 161.21
B) 161.63
C) 162.47
D) 162.65
E) 162.86
Q2) Suppose you are a U.S.investor who is planning to invest $100,000 in China.Your Chinese investment gains 6 percent.If the exchange rate moves from 7.10 Yuan per dollar to 7.15 per dollar over the period,what is your total return on this investment?
A) 4.52%
B) 4.76%
C) 4.91%
D) 5.26%
E) 5.49%
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21
Chapter 20: Mortgage-Backed Securities
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Sample Questions
Q1) What is the probability that a mortgage will be prepaid during a given year called?
A) mortgage reduction rate
B) amortization rate
C) filtration rate
D) prepayment rate
E) postponement rate
Q2) Which one of the following is the type of mortgage pool that guarantees timely payment of interest and principal?
A) prepaid
B) refinanced
C) secured
D) fully amortized
E) fully modified
Q3) When can a homeowner prepay on his or her home mortgage?
A) only on prespecified dates
B) only during the last five years of the loan period
C) only if the prepayment pays the mortgage balance in full
D) at any time
E) only if the property securing the mortgage is being sold
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Page 22