FA Capital Markets and Investment Analysis

Question 1

What is the primary market in securities?

Accepted Answer

A market where companies issue new securities directly to investors

Answer

A market where investors trade securities among themselves

Answer

A market for derivatives and options only

Answer

A market regulated exclusively by the SEC

Question 2

Which of the following best describes the weighted average cost of capital (WACC)?

Accepted Answer

The blended cost of all financing sources weighted by their proportions

Answer

The cost of only equity financing

Answer

The average interest rate on all bank loans

Answer

The risk-free rate used in discounting

Question 3

What does NPV stand for in capital investment analysis?

Accepted Answer

Net Present Value

Answer

Net Profit Variance

Answer

Normalized Price Variance

Answer

Net Portfolio Value

Question 4

An investment with a positive NPV indicates:

Accepted Answer

The investment is expected to add value beyond the required rate of return

Answer

The project will break even

Answer

The investment is expected to destroy shareholder value

Answer

The payback period exceeds 5 years

Question 5

What does the Internal Rate of Return (IRR) represent?

Accepted Answer

The discount rate that makes the NPV of an investment equal to zero

Answer

The average accounting return on investment

Answer

The annual interest earned on a bond

Answer

The rate of inflation used in capital budgeting

Question 6

Which bond characteristic directly moves in the opposite direction from interest rates?

Accepted Answer

Bond Price

Answer

Coupon Rate

Answer

Face Value

Answer

Maturity Date