DSST® practice test

Free DSST Principles of Finance Practice Test (2026)

This is a set of 25 original practice questions that follow the official DSST Principles of Finance content outline and its topic weights, each with a short explanation. Answer all 25, then read the explanations to see which topics need more study.

  • 25 questions
  • 8 topics from the official outline
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The practice test

25 questions

Question 1 of 25A firm's bonds yield 10% before taxes and its tax rate is 30%. What is its after-tax cost of debt?
Question 2 of 25What is the present value of $20,000 to be received in 8 years if the discount rate is 5% compounded annually?
Question 3 of 25Which type of risk can be greatly reduced by holding a well-diversified portfolio?
Question 4 of 25A $50,000 investment returns $15,000, $20,000, $25,000 and $30,000 at the end of years 1 through 4. Assuming cash flows arrive evenly within each year, what is the payback period?
Question 5 of 25The risk-free rate is 3%, the expected market risk premium is 6% and a stock's beta is 1.5. According to the CAPM, what is the stock's required return?
Question 6 of 25A stock just paid a dividend of $2.00 per share. Dividends are expected to grow at 4% a year forever, and investors require a 10% return. Using the constant-growth (Gordon) model, what is the stock's value?
Question 7 of 25A project costs $10,000 today and returns $4,000 at the end of each of the next 3 years. At a 10% required return, what is its NPV, and should it be accepted?
Question 8 of 25Two annuities have the same payment, interest rate and number of periods, but one is an annuity due and the other an ordinary annuity. How do their future values compare?
Question 9 of 25A firm has current assets of $450,000, including $150,000 of inventory, and current liabilities of $300,000. What is its quick (acid-test) ratio?
Question 10 of 25A credit card charges an 18% annual percentage rate, compounded monthly. What is the effective annual rate?
Question 11 of 25A debenture is a bond that is
Question 12 of 25A firm starts the year with retained earnings of $400,000, earns net income of $120,000 and pays $30,000 in dividends. What are its ending retained earnings?
Question 13 of 25A supplier offers terms of 2/10, net 30. Using a 365-day year, what is the nominal annual cost of skipping the discount and paying on day 30?
Question 14 of 25Under US GAAP, in which section of the statement of cash flows are cash dividends paid to shareholders reported?
Question 15 of 25What is the present value of $1,000 received at the end of each year for 5 years if the discount rate is 8%?
Question 16 of 25Under a tax schedule of 15% on the first $50,000 of taxable income and 25% on income above $50,000, what is the average tax rate on $150,000 of taxable income?
Question 17 of 25If the US dollar strengthens against the Japanese yen, what is the most likely effect?
Question 18 of 25What will $5,000 grow to in 10 years at 6% interest compounded annually?
Question 19 of 25A project's internal rate of return (IRR) is the discount rate at which
Question 20 of 25A firm's inventory period is 60 days, its receivables collection period is 35 days and its payables period is 40 days. What is its cash conversion cycle?
Question 21 of 25A company has a net profit margin of 5%, total asset turnover of 2.0 and an equity multiplier of 1.5. Using the DuPont identity, what is its return on equity?
Question 22 of 25An American importer must pay a supplier €500,000 in 90 days and fears the euro will rise against the dollar. Which action hedges this risk?
Question 23 of 25A firm is financed 40% by debt and 60% by equity. Its pre-tax cost of debt is 8%, its tax rate is 25% and its cost of equity is 12%. What is its WACC?
Question 24 of 25A stock has a 30% chance of returning 20%, a 50% chance of returning 10% and a 20% chance of returning −10%. What is its expected return?
Question 25 of 25A firm's preferred stock pays a fixed annual dividend of $6.00 and sells for $75 per share. Ignoring flotation costs, what is the cost of preferred stock?

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