WGU C214 Financial Mgmt Pass the OA
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
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
