Personal Finance Exam Preparation Guide
Course Introduction
Personal Finance is an essential course designed to equip students with the knowledge and skills necessary to make informed financial decisions throughout their lives. This course covers key topics such as budgeting, saving, credit management, investments, insurance, taxes, retirement planning, and financial goal setting. Through practical applications and real-world scenarios, students will learn how to develop healthy financial habits, manage debt responsibly, and build a solid foundation for long-term financial security. Whether planning for college expenses, buying a car, or preparing for the future, students gain the tools and confidence needed to achieve personal financial success.
Recommended Textbook
Fundamentals of Investments 3rd Canadian Edition by Bradford Jordan
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20 Chapters
2255 Verified Questions
2255 Flashcards
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Chapter 1: A Brief History of Risk and Return
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Sample Questions
Q1) A stock had returns of 8 percent, - 6 percent, 18 percent and 27 percent over the past four years. What was the geometric return?
A) 10.31%
B) 10.67%
C) 11.06%
D) 11.43%
E) 11.75%
Answer: C
Q2) An asset has annual returns of 11 percent, 17 percent, - 21 percent, 3 percent and 18 percent. What is the standard deviation?
A) 11.05%
B) 12.30%
C) 14.31%
D) 15.12%
E) 16.02%
Answer: E
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Chapter 2: Diversification and Risky Asset Allocation
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96 Verified Questions
96 Flashcards
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Sample Questions
Q1) Which of the following is true given various states of the economy?
A) Stock returns are generally not affected by the state of the economy
B) The summation of the probabilities of the various economic states must equal to 10
C) The majority of stock returns increase as the state of the economy worsens
D) Both the risk and return on a security are affected by the likelihood of various economic states occurring
E) The probabilities of the various economic states affect the expected return on a stock, but not the level of risk associated with those returns
Answer: D
Q2) What is the standard deviation of a portfolio 60 percent invested in Stock P and the remainder in Stock Q?
A) 5.88%
B) 1.46%
C) 4.27%
D) 2.63%
E) 3.30%
Answer: E
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Chapter 3: The Investment Process
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Sample Questions
Q1) A brokerage account in which purchases can only be made if sufficient funds are available is called a(n) ____ account.
A) Clearing
B) Access available
C) Cash
D) Call
E) Margin
Answer: C
Q2) You own 300 shares of a stock that you purchased on margin. The stock is currently valued at $19 a share. Your broker advised you today that your minimum equity position for this purchase is $1,710 as of today. What is the maintenance margin percentage?
A) 25%
B) 30%
C) 35%
D) 40%
E) 50%
Answer: B
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Chapter 4: Overview of Security Types
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Sample
Questions
Q1) Suppose you own 8 of the Willie bonds. If the net change in price is 1.24%, what will be the change in the value of your investment for the next day?
A) $99.20
B) $88.96
C) $73.14
D) $56.00
E) $8.19
Q2) A financial asset which represents a claim on another financial asset is called a ______ asset.
A) secondary
B) convertible
C) derivative
D) market
E) primary
Q3) Why do corporate bonds have a higher estimated rate of return than the Treasury bonds?
Q4) Explain what a call option is and describe the circumstances under which you will exercise that option.
Q5) How do commodity and financial futures differ with respect to carrying costs?
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Chapter 5: Mutual Funds
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120 Flashcards
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Sample Questions
Q1) ___________ is a measure of the trading activity of a mutual fund over a period.
A) DSC
B) Turnover
C) Spread
D) Maintenance fee
E) Yield-to-maturity
Q2) Which of the following facts concerning open-end mutual funds is false?
A) The number of shares is fixed.
B) Open-end funds are typically created by investment advisory firms.
C) Open-end funds stand ready to repurchase shares every trading day.
D) An open-end fund can never sell for a premium or a discount.
E) Open-end mutual funds are owned by shareholders.
Q3) Which of the following is inappropriate for investing in a mutual fund?
A) Match the investment goal to a specific fund category
B) Identify the types of services offered by funds that may be useful
C) Develop a clear investment objective
D) Select the fund with the best performance over the most recent quarter
E) None of the above
Q4) Why do the performance fees of hedge fund managers often have a "high water mark" constraint?
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Chapter 6: The Stock Market
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Sample Questions
Q1) When a registration statement for an IPO is filed, the OSC verifies that the
A) Issuer will remain solvent
B) Rules have been followed to allow for full disclosure of information
C) Stock price is set at a level that will allow shareholders to earn a positive return
D) Issuer is financially sound
E) Offering will provide value to the shareholders
Q2) What role does the Ontario Securities and Exchange Commission (OSC) play in an IPO?
Q3) Yesterday, the DJIA closed at 12,051.96. The divisor is 0.13402801. Today, every one of the stock in the index increase in value by $0.50 a share. What is today's DJIA index?
A) 12,018.43
B) 12,128.10
C) 12,609.26
D) 12,163.88
E) 12,612.00
Q4) What are the major differences between NASDAQ and the NYSE?
Q5) Describe how a stop-limit sell order is executed.
Q6) What is the main advantage of a market order?
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Chapter 7: Common Stock Valuation
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126 Flashcards
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Sample Questions
Q1) In the constant perpetual growth model, the price of a share of stock will increase each year by the:
A) dividend yield.
B) required return.
C) dividend growth rate.
D) intrinsic value.
E) future value of dividends.
Q2) Which of the following will increase the P/E ratio, everything else being constant?
I. A decrease in the number of shares outstanding
II. An increase in net income
III. A decrease in the earnings yield
IV. A decrease in the market price per share
A) I.
B) III.
C) II and IV.
D) I and III.
E) I, III and IV.
Q3) What is the process of fundamental analysis?
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Chapter 8: Stock Price Behaviour and Market Efficiency
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Sample Questions
Q1) Moving money in and out of the market based on your market expectations is called __________ and tends to lead to returns that are __________ than the overall market return, assuming that the market is efficient.
A) asset allocation; higher
B) asset allocation; lower C) market timing; higher
D) market timing; lower E) security selection; higher
Q2) Discoveries of buying shares of stock at the closing price on a given day and selling them before noon on the following day, you can generate an excess return.
A) This is a violation of weak-form market efficiency
B) This is a violation of semi-weak-form market efficiency
C) This is a violation of semistrong-form market efficiency
D) This is a violation of strong-form market efficiency
E) This does not violate market efficiency.
Q3) Describe an example of a market which is weak-form but not strong-form efficient.
Q4) List and discuss the three forms of market efficiency.
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Chapter 9: Behavioural Finance and the Psychology of Investing
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) Dow theory is a method of predicting future market movements based on the Dow Jones __________ averages.
A) industrial and transportation
B) industrial and municipal
C) industrial and commodities
D) transportation and utilities
E) commodities and utilities
Q2) According to Dow theory, the long-run direction of the stock market is seen in the:
A) daily market movements.
B) secondary reaction.
C) MSI trend.
D) primary trend.
E) tertiary trend.
Q3) Investors tend to make better decisions if they concentrate on:
A) actual losses only.
B) only potential losses.
C) individual securities.
D) the overall situation.
E) potential profits only.
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Chapter 10: Interest Rates
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112 Flashcards
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Sample Questions
Q1) A Treasury bill with 90 days to maturity is quoted at a bank discount yield of 5.24 percent. What is the bond equivalent yield?
A) 5.42%
B) 5.38%
C) 5.36%
D) 5.45%
E) 5.40%
Q2) You have a credit card loan with an 17.9 percent interest rate compounded daily. What is the effective annual rate?
A) 18.37%
B) 19.33%
C) 19.30%
D) 19.60%
E) 19.26%
Q3) What are the differences between the bank discount yield, the bond equivalent yield, and the effective annual rate?Which one is most relevant? Why?
Q4) What are the similarities and differences between Treasury bills, commercial paper, negotiable certificates of deposits, banker's acceptances, and Eurodollars?
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Page 12
Chapter 11: Bond Prices and Yields
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Sample Questions
Q1) All else the same, for a callable bond, an increase in the call premium will ________ the yield to call.
A) always increase
B) always decrease
C) not change
D) increase if the bond is selling at a premium
E) decrease if the bond is selling at s discount
Q2) ______ are debt securities with no maturity.
A) Notes
B) Bills
C) Consols
D) Bonds
E) Annuities
Q3) Which one of the following is the correct definition of a coupon rate
A) semi-annual interest payment/par value
B) annual interest/par value
C) annual interest/market value
D) semi-annual coupon/bond price
E) annual coupon/bond price
Q4) What are the five bond pricing theorems described by Burton Malkiel?
Page 13
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Chapter 12: Return, Risk and Security Management
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106 Flashcards
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Sample Questions
Q1) The graphical representation of the Capital Asset Pricing Model outlining the linear relationship between systematic risk and the expected return of an asset is shown by:
A) covariance.
B) beta.
C) the market risk premium.
D) the reward-to-risk ratio.
E) the security market line.
Q2) What is the covariance between Stock A and the market?
A) 0.0324
B) 0.0256
C) 0.0469
D) 0.0158
E) 0.0378
Q3) Which of the following has the highest expected risk premium?
A) Stock portfolio has a beta of 0.99
B) Risk-free Treasury securities
C) Individual stock with a beta of 0.67
D) A stock fund with a beta of 1.38
E) Individual stock with a beta of 1.22
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Page 14
Chapter 13: Performance Evaluation and Risk Management
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Sample Questions
Q1) What is the smallest expected loss with a probability of 2.5 percent over the next two months for a portfolio with an annual expected return of 13 percent and a standard deviation of 28 percent?
A) -24.07%
B) -20.24%
C) -28.91%
D) -26.32%
E) -22.86%
Q2) The mean of the normal distribution is _________ and the standard deviation is __________.
A) 0; 0
B) 0; 1
C) 1; 1
D) 1; 0
E) 1; 2
Q3) What is the importance of value-at-risk?
Q4) Explain why performance measures, beyond simply the raw return, are used to measure professional money management performance.
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Chapter 14: Options
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Sample Questions
Q1) An investor has purchased 5 put option contracts at a price of $3.86. The options have a strike price of $80. If the stock price at expiration is $86.27, what is the profit from this transaction?
A) $1,205
B) -$1,930
C) -$5,065
D) -$2,430
E) $3,135
Q2) Which of the following is false regarding employee stock options?
A) Employee stock options require no immediate, out-of-pocket costs to the company.
B) They can usually be exercised immediately by the employee.
C) They are a major recruiting tool to attract new employees.
D) The strike price of employee stock options can be changed.
E) They are used to align interests of shareholders and management.
Q3) When the price on a call option has risen, does it necessarily imply the option becomes less attractive now?
Q4) Explain how a credit default swap is used to manage risk.
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Chapter 15: Option Valuation
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86 Flashcards
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Sample Questions
Q1) You are managing a stock portfolio with a value of $50,000,000 and a beta of 1.15. The S&P 500 index is trading at 1,120. If the delta of the options is-0.48, how can you hedge your portfolio using put options?
A) buy 1,070 contracts
B) sell 1,130 contracts
C) sell 1,070 contracts
D) sell 1,095 contracts
E) buy 1,130 contracts
Q2) Which of the following inputs for the Black-Scholes-Merton model is not directly observable?
A) The risk-free rate.
B) The strike price.
C) The time to maturity.
D) The standard deviation.
E) The dividend yield.
Q3) Why does the value of an option increase as the volatility of the underlying asset increases?
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Chapter 16: Futures Contracts
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Sample Questions
Q1) Your company must purchase 1,134,000 gallons of heating oil in five months. Heating oil futures are available for 42,000 gallons. How can you hedge this position?
A) Sell 27 contracts.
B) Buy 24 contracts.
C) Buy 27 contracts.
D) Sell 24 contracts.
E) Buy 26 contracts.
Q2) A futures contract is similar to a forward contract except that
A) It calls for the price to determined at a later date
B) It calls for delivery of the commodity today
C) It sets a future date for delivery as compared to today's delivery under a forward contract
D) It can be arranged by any two parties on an informal basis
E) It is managed through an organized futures exchange
Q3) Assume that you own an inventory of a commodity. Explain how and why you would hedge this inventory.
Q4) Why do futures contracts represent a "zero sum game"
Q5) What are the differences between a futures contract and a forward contract? Would you ever want to use a forward contract rather than a futures contract?
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Chapter 17: Projecting Cash Flow and Earnings
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Sample Questions
Q1) If the company has 15,000 shares of stock outstanding and a price-book ratio of 2.07, what is the stock price?
A) $18.10
B) $14.14
C) $15.93
D) $12.05
E) $20.15
Q2) Morrison Inc. has a price-cash flow ratio of 12.1. The company has depreciation of $265,000 and 190,000 shares outstanding. If the stock currently sells for $43 per share, what are earnings per share?
A) $2.48
B) $2.16
C) $2.27
D) $2.09
E) $4.95
Q3) Simonz Co. had a ROE of 12% last year, and the ROE increased to 40% this year. At the same time, the profit margin decreased. How is this possible?
Q4) What do operating cash flow, investment cash flow and financing cash flow measure?
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Chapter 18: Corporate Bonds
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Sample Questions
Q1) _______ guidelines are restrictions established by financial institutions for investment portfolio selection.
A) Best choice
B) Optimum selection
C) Restricted investment
D) Prudent investment
E) Debt selection
Q2) You own a bond with a make-whole call provision. The bond matures in 11 years, but is being called today. The coupon rate is 8% with interest paid semiannually. What is the current call price if the discount rate is 7.2% and the make-whole call provision?
A) $932.84
B) $977.78
C) $1,060.08
D) $1,096.22
E) $1,204.55
Q3) A bond rating company ran into trouble when it began rating bonds of companies without their approval. Many of the companies who received these 'free' credit ratings were upset by this practice. Why would a company be unhappy about receiving a 'free' credit rating?
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Page 20
Chapter 19: Government Bonds and Mortgaged-Backed Securities
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Sample
Questions
Q1) A homeowner takes out a $250,000 mortgage for 30 years at an interest rate of 5.8 percent. What is the interest payment in the first month?
A) $1,246.21
B) $1,208.33
C) $1,287.16
D) $1,174.32
E) $1,304.16
Q2) How much will be the first coupon payment?
A) $250
B) $125
C) $62.50
D) $500
E) $200
Q3) VRDOs frequently carry a provision allowing the issuer to
A) Convert the issue into a fixed-rate issue
B) Delay payments under certain circumstances
C) Convert the issue from GO bonds to revenue bonds
D) Repay the entire issue at any time with 30-day notice
E) Eliminate the call premium if the entire issue is called
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Q4) Explain how the CMHC plays a role in the creation of a mortgage-backed security.
Chapter 20: International Portfolio Investment
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Sample Questions
Q1) Regarding political risk, foreign investors care
A) Foreign fund transfers
B) Expropriation
C) Withholding interests
D) Exchange rate controls
E) All of the above
Q2) While you are looking for the spot exchange rates for the British pound (\(\le\)), the Japanese yen (\(\times\)), and the Canadian dollar ($), you find the following quotes: \(\le\) 0.4230 = $1 and \(\times\)84.26 = $1. What is the cross-rate for British pound per Japanese yen (\(\le\)/\(\times\))?
A) 0.0050
B) 199.19
C) 0.0119
D) 109.11
E) Undetermined
Q3) What are the possible concerns for international investments compared with domestic investments?
Q4) How can a firm lower its cost of capital through cross listing?
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