WGU C214 Financial Mgmt Pass the OA
Characteristics of preferred stock includes - 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 - Answer can go without payment and pay in arrears the
following year
Characteristics of common stock are - 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 - Answer preferred stock (in an IPO)
What stock is considered a hybrid - Answer preferred stock
One thing common stock and preferred stock have in common is - Answer both have no
maturity date
Which type of security has voting rights - Answer common stock
Debt covenants and restrictions help to ensure that - Answer management is meeting
bond and shareholder expectations
NOTE: covenants are promises meant to be kept
What is true regarding bonds - 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 - Answer required rate of return is equal to the coupon
rate
, Why are bonds the primary method for raising capital - 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 - Answer convertible bonds
What is the interest rate for annual payments of a bond known as - 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 - Answer never change
Debentures are - 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 - Answer has collateral like a mortgage
The amount repaid at the expiration date of a bond is - Answer PAR value
NOTE: expiration date is also known as maturity date PAR (or Face Value) is typically
$1000
Duration measures - 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 - Answer years
A bond premium occurs when - 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 - Answer high yield bonds without any stability
"Leveraged" results in - 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 - Answer LEAST liquid of current assets
NOTE: current assets take less than 12 months to make liquid
Characteristics of preferred stock includes - 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 - Answer can go without payment and pay in arrears the
following year
Characteristics of common stock are - 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 - Answer preferred stock (in an IPO)
What stock is considered a hybrid - Answer preferred stock
One thing common stock and preferred stock have in common is - Answer both have no
maturity date
Which type of security has voting rights - Answer common stock
Debt covenants and restrictions help to ensure that - Answer management is meeting
bond and shareholder expectations
NOTE: covenants are promises meant to be kept
What is true regarding bonds - 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 - Answer required rate of return is equal to the coupon
rate
, Why are bonds the primary method for raising capital - 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 - Answer convertible bonds
What is the interest rate for annual payments of a bond known as - 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 - Answer never change
Debentures are - 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 - Answer has collateral like a mortgage
The amount repaid at the expiration date of a bond is - Answer PAR value
NOTE: expiration date is also known as maturity date PAR (or Face Value) is typically
$1000
Duration measures - 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 - Answer years
A bond premium occurs when - 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 - Answer high yield bonds without any stability
"Leveraged" results in - 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 - Answer LEAST liquid of current assets
NOTE: current assets take less than 12 months to make liquid
