WGU C214 Financial Mgmt Pass the OA Exam,
With Complete Solution 2024
Characteristics of preferred stock includes
-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
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
"Leveraged" results in
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
LEAST liquid of current assets
NOTE: current assets take less than 12 months to make liquid
Net fixed assets are
long term assets such as buildings, land, equipment, machinery
NOTE: assets that are not current
A/P represents money paid to
With Complete Solution 2024
Characteristics of preferred stock includes
-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
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
"Leveraged" results in
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
LEAST liquid of current assets
NOTE: current assets take less than 12 months to make liquid
Net fixed assets are
long term assets such as buildings, land, equipment, machinery
NOTE: assets that are not current
A/P represents money paid to
