WGU C214 OA Financial Management
Question and Answer | Complete Verified
Answers | Review Pack
• Preferred stock dividends -✓✓can go without payment and pay in arrears the
following year
• Characteristics of common stock are -✓✓-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 -✓✓preferred stock (in an IPO)
• What stock is considered a hybrid -✓✓preferred stock
• One thing common stock and preferred stock have in common is -✓✓both have
no maturity date
• Which type of security has voting rights -✓✓common stock
• Debt covenants and restrictions help to ensure that -✓✓management is meeting
bond and shareholder expectations
NOTE: covenants are promises meant to be kept
• What is true regarding bonds -✓✓-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 -✓✓required rate of return is equal to the coupon
rate
, • Why are bonds the primary method for raising capital -✓✓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 -✓✓convertible bonds
• What is the interest rate for annual payments of a bond known as -✓✓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 -✓✓never change
• Debentures are -✓✓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 -✓✓has collateral like a mortgage
• The amount repaid at the expiration date of a bond is -✓✓PAR value
NOTE: expiration date is also known as maturity date PAR (or Face Value) is
typically $1000
• Duration measures -✓✓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 -✓✓years
• A bond premium occurs when -✓✓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 -✓✓high yield bonds without any stability
Question and Answer | Complete Verified
Answers | Review Pack
• Preferred stock dividends -✓✓can go without payment and pay in arrears the
following year
• Characteristics of common stock are -✓✓-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 -✓✓preferred stock (in an IPO)
• What stock is considered a hybrid -✓✓preferred stock
• One thing common stock and preferred stock have in common is -✓✓both have
no maturity date
• Which type of security has voting rights -✓✓common stock
• Debt covenants and restrictions help to ensure that -✓✓management is meeting
bond and shareholder expectations
NOTE: covenants are promises meant to be kept
• What is true regarding bonds -✓✓-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 -✓✓required rate of return is equal to the coupon
rate
, • Why are bonds the primary method for raising capital -✓✓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 -✓✓convertible bonds
• What is the interest rate for annual payments of a bond known as -✓✓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 -✓✓never change
• Debentures are -✓✓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 -✓✓has collateral like a mortgage
• The amount repaid at the expiration date of a bond is -✓✓PAR value
NOTE: expiration date is also known as maturity date PAR (or Face Value) is
typically $1000
• Duration measures -✓✓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 -✓✓years
• A bond premium occurs when -✓✓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 -✓✓high yield bonds without any stability
