FINM1001 Foundations of Finance
The Complete Exam Bible · S2 2026FINM1001 Overview
- Australian National University
- Semester 2 2026
- Level 1
- Closed book final
Foundations of Finance develops a connected set of decisions rather than isolated formulas. It begins by locating savers, borrowers, intermediaries and securities within money, capital, primary and secondary markets.
- Assessment rewards consistency Strong tutorial quiz results can retain their weight instead of transferring it to the final examination.
- Timing drives valuation Cash-flow dates and rate frequency must agree before any share, debt or project formula is used.
- Risk has distinct measures Standard deviation, correlation and beta answer different questions and cannot be substituted for one another.
- Decisions need interpretation Every numeric result should finish with premium or discount, accept or reject, or the supported risk comparison.
How FINM1001 is assessed
| Component | Weight | Format |
|---|---|---|
| Tutorial Quiz 1 | 10% | In person during the enrolled tutorial in Week 4; individually redeemable |
| Tutorial Quiz 2 | 10% | In person during the enrolled tutorial in Week 5; individually redeemable |
| Tutorial Quiz 3 | 10% | In person during the enrolled tutorial in Week 8; individually redeemable |
| Tutorial Quiz 4 | 10% | In person during the enrolled tutorial in Week 10; individually redeemable |
| Final Exam | 60% | Closed book, whole-semester coverage, 15 minutes reading plus 2 hours writing; weight can rise through quiz redemption |
The initial weights total 100%. Each tutorial quiz is compared with the final-exam mark and its weight transfers to the final when redemption improves the result, so the final examination can carry more than its 60% base weight.
What FINM1001 covers
Follow the finance decision chain from markets and time value through security valuation, project choice, portfolio risk and the CAPM.
Financial Markets and Finance Ethics
financial intermediaries · money and capital markets · primary and secondary markets · professional conductTrace the claims before applying labels
Financial systems move funds from parties with available savings toward parties seeking finance.
- Financial system flows
- Money and capital markets
- Primary and secondary markets
- Direct and intermediated finance
- Professional conflict controls
Financial Mathematics
cash-flow timelines · present and future value · annuities and perpetuities · rate conversionsMake the timeline control the formula
Time value of money compares cash flows only after moving them to a common date. Compounding carries a value forward by multiplying once for each interval.
- Cash-flow timelines
- Present and future value
- Annuity timing
- Perpetuity timing
- Interest-rate conversion
Valuing Shares
dividend timing · constant dividends · constant growth · valuation sensitivityValue the dividends that remain
A dividend-discount valuation treats the share price as the present value of future dividends available to the owner. Dividend timing decides the numerator.
- Dividend timing
- Constant dividends
- Constant growth
- Terminal value
- Valuation sensitivity
Valuing Debt Instruments
coupon cash flows · zero-coupon debt · yield conventions · premium and discount checksPrice promised cash flows on the coupon clock
A coupon bond combines a finite annuity of coupon payments with one face-value payment at maturity. A zero-coupon bond contains only the maturity payment.
- Coupon cash flows
- Periodic yield
- Bond pricing
- Premium and discount
- Zero-coupon debt
Making Investment Decisions
incremental cash flow · tax effects · net present value · mutually exclusive choicesBuild the counterfactual before discounting
Capital budgeting compares the firm with a project against the firm without it. Relevant cash flows are incremental: they change because the project is accepted.
- Incremental cash flow
- Sunk and opportunity costs
- Tax effects
- Net present value
- Equivalent annual value
Risk and Return
probability distributions · expected return · variance · standard deviation · sources of riskDescribe a distribution with centre and spread
A risky investment can produce several possible returns. Expected return is the probability-weighted average of those outcomes.
- Return distributions
- Expected return
- Variance
- Standard deviation
- Systematic and unsystematic risk
Portfolio Theory
portfolio return · covariance and correlation · diversification · minimum-variance reasoningLet covariance determine the diversification gain
Portfolio expected return is a weighted average of component expected returns. Portfolio risk is not a weighted average in general because asset returns may move together or offset one another.
- Portfolio weights
- Expected portfolio return
- Covariance
- Correlation
- Diversification
CAPM and Project Discount Rates
systematic risk · beta · security market line · project required return · risk-adjusted NPVUse beta to price market exposure
The CAPM begins with a risk-free return and adds compensation for systematic risk. The market risk premium is expected market return minus the risk-free rate.
- Systematic risk
- Beta
- Market risk premium
- Security market line
- Project discount rate
It then uses time value of money to place cash flows on a common date before applying that logic to shares, debt instruments and investment projects.
The diversification block shifts from cash-flow valuation to uncertain returns. Expected return describes the probability-weighted centre of a distribution; variance and standard deviation describe spread; covariance and correlation determine how asset risks combine.
The CAPM then focuses on systematic market exposure through beta and provides a risk-adjusted required return that can be carried into project NPV.
Assessment combines tutorial quizzes with a closed-book final examination. Each tutorial quiz initially contributes ten percent and is individually redeemable against the final-exam mark.
The final begins at sixty percent and absorbs the weight of a quiz when that transfer gives the student the higher result. The four quiz rows and base final row sum to one hundred percent.
The current material states that the final covers content through the semester, allows fifteen minutes reading time and two hours writing time.
It does not publish a current section breakdown or a complete permitted-material list in the captured files, so those operational details must be taken from the official instructions for the sitting.
What makes the course demanding is visible in the source.
Calculations frequently join several timing and risk choices: converting a quoted rate, locating a dividend or annuity value, selecting incremental cash flows, separating total from systematic risk, and writing the financial decision that follows. The arithmetic is often manageable once those choices are correct.
A reliable study method is to draw before calculating.
Use a timeline for cash flows, a distribution table for uncertain returns, and separate CAPM and NPV lines for integrated questions. State units beside every rate and carry full precision until the final answer. Direction checks provide independent evidence: a higher required return lowers present value, a coupon below yield implies a discount, and lower correlation reduces portfolio risk when other inputs remain fixed.
Worked example · free
Carry a project beta into an NPV decision
- 1Calculate the market risk premium and the project required return.
- 1Discount the project cash flows at that return.
- 1Subtract the time-zero investment and preserve precision.
- 1State the decision and the beta assumption controlling it.
Key terms
- Money market
- The market for short-term financial instruments and funding claims, distinguished from the capital market by maturity and instrument type.
- Primary market
- The market in which a newly issued financial claim is sold and the issuer receives funding from the transaction.
- Present value
- The time-zero equivalent of a future cash flow after discounting at a rate matched to the cash-flow period.
- Annuity
- A finite series of equal cash flows occurring at regular intervals, classified by when the first payment occurs.
- Dividend discount model
- A share-valuation method that discounts future dividends, with the constant-growth form using the next dividend and a stable growth assumption.
- Bond yield
- The periodic return required by lenders and used to discount promised coupon and face-value cash flows at the current price.
- Incremental cash flow
- A cash flow that changes because a project is accepted rather than rejected, including opportunity costs and excluding sunk costs.
- Net present value
- The present value of incremental future cash flows less the initial investment, used to measure estimated value creation.
- Expected return
- The probability-weighted average of possible returns under a stated distribution, representing its centre rather than a guaranteed outcome.
- Standard deviation
- The square root of return variance, expressing total dispersion in the same units as the underlying returns.
- Correlation
- A scaled measure of how two returns move together, used with component volatility to determine portfolio covariance and diversification.
- Beta
- A covariance-based measure of an asset or project's systematic exposure to market-portfolio movements under the CAPM.
FINM1001 FAQ
How is the course assessed?
Four in-tutorial quizzes begin at ten percent each and a closed-book final examination begins at sixty percent. The quiz weights are individually redeemable against the final-exam mark.
How does quiz redemption work?
A quiz keeps its ten percent weight when its mark exceeds the final-exam mark. Otherwise that weight transfers automatically to the final examination to produce the higher course result.
What is known about the final examination?
The current course material states closed-book whole-semester coverage, fifteen minutes reading time and two hours writing time. Follow official sitting instructions for any further operational detail.
What makes the calculations difficult?
Most lost marks arise from timing, frequency and interpretation: the wrong dividend date, a mismatched periodic rate, a non-incremental project cash flow, or a risk measure used for the wrong purpose.
Are past or practice questions available?
The captured materials include an older practice mid-semester paper, current quiz solutions and a past CAPM-into-NPV question. This guide uses their question types but authors new scenarios and numbers.
How should I revise for a closed-book paper?
Rebuild formulas from timelines and definitions, complete mixed calculations without notes, predict the direction before recomputing, and finish every result with its date, unit and financial decision.
Questions students ask in each FINM1001 chapter
- Can one transaction have several market labels?
- Yes. The labels answer different questions. A newly issued long-term bond can be both a primary-market transaction and a capital-market instrument, while its later resale is secondary. Chapter 01 · Financial Markets and Finance Ethics
- Why is a nominal annual rate not inserted directly?
- It is a quotation derived from a shorter periodic rate. Convert it to the rate for one cash-flow period and express the period count on the same clock before valuation. Chapter 02 · Financial Mathematics
- Why does the next dividend enter the numerator?
- Today's owner values dividends that remain after today. A just-paid D0 is historical, while D1 is the first future payment in the growing perpetuity being valued. Chapter 03 · Valuing Shares
- Why are coupon and yield divided by frequency?
- Coupons occur on the shorter payment clock, so both coupon dollars and the nominal quoted yield must be expressed per coupon period before discounting every promised payment. Chapter 04 · Valuing Debt Instruments
- Why is a feasibility study often excluded?
- When its payment is already irreversible, accepting or rejecting the project cannot change it. It is sunk and does not belong in the incremental comparison. Chapter 05 · Making Investment Decisions
- Is expected return the most likely outcome?
- Not necessarily. It is a probability-weighted average and may not equal any possible outcome, even when one state has the highest individual probability in the specified distribution. Chapter 06 · Risk and Return
- Why is portfolio return a weighted average?
- Expected values combine linearly, so each asset contributes its expected return in proportion to the capital allocated through its portfolio weight, provided the weights describe the full investment. Chapter 07 · Portfolio Theory
- Why subtract the risk-free rate from market return?
- The difference is the market risk premium. Beta scales only that compensation for risk, while the risk-free rate remains the model's intercept and applies regardless of the beta chosen. Chapter 08 · CAPM and Project Discount Rates
How to study for the exam
First retrieve the market classifications, timeline rules and risk-measure definitions without notes. Then practise one complete chain from rate conversion to valuation, one incremental-cash-flow NPV, one probability distribution, one portfolio variance and one CAPM-to-NPV decision. Mark the first unsupported step rather than only the final number, and use the live institutional system for current sitting instructions.
Your AI Finance tutor for FINM1001
Stuck on a hard FINM1001 question? Sia is AskSia’s AI Finance tutor — ask any FINM1001 Foundations of Finance question and get a clear, step-by-step explanation grounded in how the course is actually taught and assessed. Read this whole study guide free, then take your hardest questions to Sia.
