WGU C214 FINANCIAL MGMT PASS THE OA EXAM QUESTIONS AND
ANSWERS
Characteristics of preferred stock includes - CORRECT ANSWER✅✅-dividends in arrears
-dividends are cumulative
-higher payoff claim in a BK (has first dibs in a BK)
-considered "hybrid" (part stock/part bond)
-no fixed maturity date
-no voting rights
-can skip dividend payments
-dividends don't change year-after-year
-used in start ups (IPO)
Preferred stock dividends - CORRECT ANSWER✅✅can go without payment and pay in arrears the
following year
Characteristics of common stock are - CORRECT ANSWER✅✅-voting rights
-no maturity date
-corporate governance
-lower payoff claim in BK
-variable returns
-unlimited earnings potential
-earnings are in dividends & the increase in price of stock
New start up ventures often issue - CORRECT ANSWER✅✅preferred stock (in an IPO)
What stock is considered a hybrid - CORRECT ANSWER✅✅preferred stock
One thing common stock and preferred stock have in common is - CORRECT ANSWER✅✅both have no
maturity date
,Which type of security has voting rights - CORRECT ANSWER✅✅common stock
Debt covenants and restrictions help to ensure that - CORRECT ANSWER✅✅management is meeting
bond and shareholder expectations
NOTE: covenants are promises meant to be kept
What is true regarding bonds - CORRECT ANSWER✅✅-when bond matures, bondholder gets lump sum
back
-coupon rate doesn't change
-maturity is in years
-PAR value is typically $1000
-Future value (same as PAR) is typically $1000
Bond sells at face value when - CORRECT ANSWER✅✅required rate of return is equal to the coupon
rate
Why are bonds the primary method for raising capital - CORRECT ANSWER✅✅because bonds remove
the intermediary costs
NOTE: IPO's require an intermediary known as a syndicate - a group of banks underwriting the security
issue
What type of bond can be traded for stock - CORRECT ANSWER✅✅convertible bonds
What is the interest rate for annual payments of a bond known as - CORRECT ANSWER✅✅the coupon
rate
NOTE: coupon rate is the established interest rate for the life of the bond and will remain unchanged
Coupon rate is the established rate of the bond and should - CORRECT ANSWER✅✅never change
, Debentures are - CORRECT ANSWER✅✅secured bonds
NOTE: debentures are a debt instrument (bond) issued to raise cash, secured against a company's assets
and backed by credit, transferable by the holder, and may also be unsecured
Secured loan - CORRECT ANSWER✅✅has collateral like a mortgage
The amount repaid at the expiration date of a bond is - CORRECT ANSWER✅✅PAR value
NOTE: expiration date is also known as maturity date PAR (or Face Value) is typically $1000
Duration measures - CORRECT ANSWER✅✅the market risk of a bond and is the percentage drop in
price caused by a 1% increase in yield (rate)
NOTE: measurement of the drop in price after a rate increase
Maturity of bonds is calculated in - CORRECT ANSWER✅✅years
A bond premium occurs when - CORRECT ANSWER✅✅bonds are issued for an amount greater than
their face or maturity amount; caused by the bonds having a stated interest rate that is higher than the
market interest rate for similar bonds
Junk Bonds are - CORRECT ANSWER✅✅high yield bonds without any stability
"Leveraged" results in - CORRECT ANSWER✅✅having more debt (bonds) than equity (stock) and lower
stock prices
NOTE: recall that debt is safer and levels out risk in a portfolio
In current assets, inventory is the - CORRECT ANSWER✅✅LEAST liquid of current assets
NOTE: current assets take less than 12 months to make liquid
Net fixed assets are - CORRECT ANSWER✅✅long term assets such as buildings, land, equipment,
machinery
ANSWERS
Characteristics of preferred stock includes - CORRECT ANSWER✅✅-dividends in arrears
-dividends are cumulative
-higher payoff claim in a BK (has first dibs in a BK)
-considered "hybrid" (part stock/part bond)
-no fixed maturity date
-no voting rights
-can skip dividend payments
-dividends don't change year-after-year
-used in start ups (IPO)
Preferred stock dividends - CORRECT ANSWER✅✅can go without payment and pay in arrears the
following year
Characteristics of common stock are - CORRECT ANSWER✅✅-voting rights
-no maturity date
-corporate governance
-lower payoff claim in BK
-variable returns
-unlimited earnings potential
-earnings are in dividends & the increase in price of stock
New start up ventures often issue - CORRECT ANSWER✅✅preferred stock (in an IPO)
What stock is considered a hybrid - CORRECT ANSWER✅✅preferred stock
One thing common stock and preferred stock have in common is - CORRECT ANSWER✅✅both have no
maturity date
,Which type of security has voting rights - CORRECT ANSWER✅✅common stock
Debt covenants and restrictions help to ensure that - CORRECT ANSWER✅✅management is meeting
bond and shareholder expectations
NOTE: covenants are promises meant to be kept
What is true regarding bonds - CORRECT ANSWER✅✅-when bond matures, bondholder gets lump sum
back
-coupon rate doesn't change
-maturity is in years
-PAR value is typically $1000
-Future value (same as PAR) is typically $1000
Bond sells at face value when - CORRECT ANSWER✅✅required rate of return is equal to the coupon
rate
Why are bonds the primary method for raising capital - CORRECT ANSWER✅✅because bonds remove
the intermediary costs
NOTE: IPO's require an intermediary known as a syndicate - a group of banks underwriting the security
issue
What type of bond can be traded for stock - CORRECT ANSWER✅✅convertible bonds
What is the interest rate for annual payments of a bond known as - CORRECT ANSWER✅✅the coupon
rate
NOTE: coupon rate is the established interest rate for the life of the bond and will remain unchanged
Coupon rate is the established rate of the bond and should - CORRECT ANSWER✅✅never change
, Debentures are - CORRECT ANSWER✅✅secured bonds
NOTE: debentures are a debt instrument (bond) issued to raise cash, secured against a company's assets
and backed by credit, transferable by the holder, and may also be unsecured
Secured loan - CORRECT ANSWER✅✅has collateral like a mortgage
The amount repaid at the expiration date of a bond is - CORRECT ANSWER✅✅PAR value
NOTE: expiration date is also known as maturity date PAR (or Face Value) is typically $1000
Duration measures - CORRECT ANSWER✅✅the market risk of a bond and is the percentage drop in
price caused by a 1% increase in yield (rate)
NOTE: measurement of the drop in price after a rate increase
Maturity of bonds is calculated in - CORRECT ANSWER✅✅years
A bond premium occurs when - CORRECT ANSWER✅✅bonds are issued for an amount greater than
their face or maturity amount; caused by the bonds having a stated interest rate that is higher than the
market interest rate for similar bonds
Junk Bonds are - CORRECT ANSWER✅✅high yield bonds without any stability
"Leveraged" results in - CORRECT ANSWER✅✅having more debt (bonds) than equity (stock) and lower
stock prices
NOTE: recall that debt is safer and levels out risk in a portfolio
In current assets, inventory is the - CORRECT ANSWER✅✅LEAST liquid of current assets
NOTE: current assets take less than 12 months to make liquid
Net fixed assets are - CORRECT ANSWER✅✅long term assets such as buildings, land, equipment,
machinery
