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Answer 1

Yes, the finally block is executed however the flow leaves the try block – whether by reaching the end, returning, or throwing an exception.

From the C# 4 spec, section 8.10:

The statements of a finally block are always executed when control leaves a try
statement. This is true whether the control transfer occurs as a result of normal
execution, as a result of executing a break, continue, goto, or return statement, or as a
result of propagating an exception out of the try statement.

(Section 8.10 has a lot more detail on this, of course.)

Note that the return value is determined before the finally block is executed though, so if you did this:

int Test()
{
    int result = 4;
    try
    {
        return result;
    }
    finally
    {
        // Attempt to subvert the result
        result = 1;
    }
}

… the value 4 will still be returned, not 1 – the assignment in the finally block will have no effect.