Finance 33 First Examination

Student Name: ID #: Permit #:
Course: Fin 33 Examination: 1st Examination Page:

College: CAE Term/Semester: 2nd/1st S.Y: 2018-2019
Total Points: 30 Exam Date: September 6, 2018
Instruction(s): Answer correctly.
1. The price that lenders receive and borrowers pay for debt capital.
a. Interest Rates
b. Time Preferences for consumption
c. Risk
d. Inflation
2. Measure the uncertainty that an investor is willing to take to realize a gain from an
investment.
a. Interest Rates
b. Time Preferences for consumption
c. Risk
d. Inflation
3. It compensate for taking in risk of holding bonds over a lengthy period of time.
a. Liquidity premium
b. Maturity risk premium
c. Default risk premium
d. Inflation premium
4. A portion of investment return that compensates for expected increases in the price
level.
a. Liquidity premium
b. Maturity risk premium
c. Default risk premium
d. Inflation premium
5. It refers to the annual return on investment.

a. Cost of money
b. Premium
c. Yield
d. Structure
6. The higher the risk, the higher the required return.

a. True
b. False
7. The fluctuation of money growth is the cause of fluctuation in the rate of inflation.
a. True
b. False
8. Inflation happens because people expect inflation.

a. True
b. False
9. Inflation is the amount by which pieces increase over time.

a. True
b. False
10. Real risk-free rate of interest is the rate of interest that would exist is a default free
treasury securities if no inflation were expected.
a. True
b. False
11. It is the stated value of the bond.

a. Par Value
b. Fair Market Value
c. Nominal Value
d. Real Value
12. It gives the issuing corporation the right to call the bonds for redemption.
a. Call premium
b. Call protection
c. Call provision
d. Refunding operation
13. These are options that permit the holder to buy stock at a fixed price.
a. Income bond
b. Warrants
c. Indexed bonds
d. Purchasing power bonds
14. It refers to an option to convert the bonds into a fixed number of shares of common
stock.
a. Convertible bonds
b. Warrants
c. Indexed bonds
15. It facilitates the orderly retirement of the bond issue.

a. Convertible bonds
b. Warrants
c. Sinking fund provision
16. Corporate bonds are traded primarily in electronic/telephone markets rather than in
organized exchanges.
a. True
b. False
17. The value of any financial asset is simply the present value of the cash flows the
asset is expected to produce.
a. True
b. False
18. Whenever the going rate of interest rises above the coupon rate, a fixed-rate bond’s
price will fall below its par value, and it is called a premium bond.
a. True
b. False
19. Whenever the going rate of interest rises above the coupon rate, a fixed-rate bond’s
price will fall below its par value, and it is called a discount bond.
a. True
b. False
20. A bond that has been issued is known as a seasoned issue.

a. True
b. False
21. The risk an investor would face if she held only this one asset.
a. Risk
b. Stand-alone risk
c. Deviation
d. Loss
22. It is defined as the chance that the event will occur.

a. Risk
b. Stand-alone risk
c. Deviation
d. Probability
23. The tendency of two variables to move together is called

a. Correlation
b. Stand-alone risk
c. Deviation
d. Probability
24. A portfolio consisting of all stocks is called

a. Risk
b. Personal portfolio
c. Market portfolio
d. Group portfolio
25. It is an important tool used to analyze the relationship between risk and rates of
return.
a. Capital Asset Pricing Model
b. Relevant Risk
c. Market Risk
d. Diversifiable Risk
26. The smaller the standard deviation, the tighter the probability distribution.
a. True
b. False
27. Normal distribution happens when the actual return will be within +-1 standard
deviation of the expected return.
a. True
b. False
28. Expected return portfolio is simply the weighted average of the expected return on
the individual assets in the portfolio.
a. True
b. False
29. Correlation coefficient measure the tendency of the two variables to move together.
a. True
b. False
30. Diversifiable Risk is caused by such random events as lawsuits, strikes, successful
and unsuccessful marketing programs, winning or losing a major contract, and other
events that are unique to a particular firm.
a. True
b. False
31. The market risk of a stock is measured by its beta coefficient

a. True
b. False
32. The beta of a portfolio is the total of the individual securities’ betas.
a. True
b. False

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Student Name: ID #: Permit #:

Course: Fin 33 Examination: 1st Examination Page:

Instruction(s): Answer correctly.

5. It refers to the annual return on investment.

6. The higher the risk, the higher the required return.

8. Inflation happens because people expect inflation.

9. Inflation is the amount by which pieces increase over time.

11. It is the stated value of the bond.

15. It facilitates the orderly retirement of the bond issue.

20. A bond that has been issued is known as a seasoned issue.

22. It is defined as the chance that the event will occur.

23. The tendency of two variables to move together is called

24. A portfolio consisting of all stocks is called

31. The market risk of a stock is measured by its beta coefficient

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