WGU C214 Financial Mgmt Pass the OA
Exam Questions and Complete
Solutions
Characteristics of̣ pref̣erred stock includes - Answer: -dividends in arrears-
dividends are cumulative
-higher payof̣f ̣ claim in a BK (has f̣irst dibs in a BK)
-considered "hybrid" (part stock/part bond)
-no f̣ixed maturity date
-no voting rights
-can skip dividend payments
-dividends don't change year-af̣ter-year
-used in start ups (IPO)
Pref̣erred stock dividends - Answer: can go without payment and pay in arrears the f̣ollowing year
Characteristics of̣ common stock are - Answer: -voting rights-
no maturity date
-corporate governance
-lower payof̣f ̣ claim in BK
-variable returns
-unlimited earnings potential
-earnings are in dividends & the increase in price o f̣ stock
New start up ventures of̣ten issue - Answer: pref̣erred stock (in an IPO)
What stock is considered a hybrid - Answer: pref̣erred stock
,One thing common stock and pref̣erred stock have in common is - Answer: both have no maturity date
Which type of̣ 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 f̣ace value when - Answer: required rate of̣ return is equal to the coupon rate
Why are bonds the primary method f̣or raising capital - Answer: because bonds remove the
intermediary costs
NOTE: IPO's require an intermediary known as a syndicate - a group o f̣ banks underwriting the security
issue
What type of̣ bond can be traded f̣or stock - Answer: convertible bonds
What is the interest rate f̣or annual payments of̣ a bond known as - Answer: the coupon rate
NOTE: coupon rate is the established interest rate f̣or the li f̣e o f̣ the bond and will remain unchanged
Coupon rate is the established rate of̣ 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, transf̣erable by the holder, and may also be unsecured
Secured loan - Answer: has collateral like a mortgage
The amount repaid at the expiration date of̣ 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 of̣ a bond and is the percentage drop in price caused by a
1% increase in yield (rate)
NOTE: measurement of̣ the drop in price a f̣ter a rate increase
Maturity of̣ bonds is calculated in - Answer: years
A bond premium occurs when - Answer: bonds are issued f̣or an amount greater than their f̣ace or
maturity amount; caused by the bonds having a stated interest rate that is higher than the market
interest rate f̣or 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 saf̣er and levels out risk in a portf f̣olio
In current assets, inventory is the - Answer: LEAST liquid of̣ current assets
NOTE: current assets take less than 12 months to make liquid
Net f̣ixed assets are - Answer: long term assets such as buildings, land, equipment, machinery
NOTE: assets that are not current
Exam Questions and Complete
Solutions
Characteristics of̣ pref̣erred stock includes - Answer: -dividends in arrears-
dividends are cumulative
-higher payof̣f ̣ claim in a BK (has f̣irst dibs in a BK)
-considered "hybrid" (part stock/part bond)
-no f̣ixed maturity date
-no voting rights
-can skip dividend payments
-dividends don't change year-af̣ter-year
-used in start ups (IPO)
Pref̣erred stock dividends - Answer: can go without payment and pay in arrears the f̣ollowing year
Characteristics of̣ common stock are - Answer: -voting rights-
no maturity date
-corporate governance
-lower payof̣f ̣ claim in BK
-variable returns
-unlimited earnings potential
-earnings are in dividends & the increase in price o f̣ stock
New start up ventures of̣ten issue - Answer: pref̣erred stock (in an IPO)
What stock is considered a hybrid - Answer: pref̣erred stock
,One thing common stock and pref̣erred stock have in common is - Answer: both have no maturity date
Which type of̣ 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 f̣ace value when - Answer: required rate of̣ return is equal to the coupon rate
Why are bonds the primary method f̣or raising capital - Answer: because bonds remove the
intermediary costs
NOTE: IPO's require an intermediary known as a syndicate - a group o f̣ banks underwriting the security
issue
What type of̣ bond can be traded f̣or stock - Answer: convertible bonds
What is the interest rate f̣or annual payments of̣ a bond known as - Answer: the coupon rate
NOTE: coupon rate is the established interest rate f̣or the li f̣e o f̣ the bond and will remain unchanged
Coupon rate is the established rate of̣ 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, transf̣erable by the holder, and may also be unsecured
Secured loan - Answer: has collateral like a mortgage
The amount repaid at the expiration date of̣ 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 of̣ a bond and is the percentage drop in price caused by a
1% increase in yield (rate)
NOTE: measurement of̣ the drop in price a f̣ter a rate increase
Maturity of̣ bonds is calculated in - Answer: years
A bond premium occurs when - Answer: bonds are issued f̣or an amount greater than their f̣ace or
maturity amount; caused by the bonds having a stated interest rate that is higher than the market
interest rate f̣or 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 saf̣er and levels out risk in a portf f̣olio
In current assets, inventory is the - Answer: LEAST liquid of̣ current assets
NOTE: current assets take less than 12 months to make liquid
Net f̣ixed assets are - Answer: long term assets such as buildings, land, equipment, machinery
NOTE: assets that are not current
