WGU C214 Financial Mg̣mt Pass the OA
Exam Questions and Complete
Solutions
Characteristics of preferred stock includes - Answer: -dividends in arrears-
dividends are cumulative
-hig̣her payoff claim in a BK (has first dibs in a BK)
-considered "hybrid" (part stock/part bond)
-no fixed maturity date
-no voting̣ rig̣hts
-can skip dividend payments
-dividends don't chang̣e year-after-year
-used in start ups (IPO)
Preferred stock dividends - Answer: can g̣o without payment and pay in arrears the followin g̣ year
Characteristics of common stock are - Answer: -voting̣
rig̣hts-no maturity date
-corporate g̣overnance
-lower payoff claim in BK
-variable returns
-unlimited earning̣s potential
-earning̣s 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 thing̣ common stock and preferred stock have in common is - Answer: both have no maturity date
Which type of security has voting̣ rig̣hts - Answer: common stock
Debt covenants and restrictions help to ensure that - Answer: manag̣ement is meeting̣ bond and
shareholder expectations
NOTE: covenants are promises meant to be kept
What is true reg̣arding̣ bonds - Answer: -when bond matures, bondholder g̣ets lump sum back
-coupon rate doesn't chang̣e
-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 raisin g̣ capital - Answer: because bonds remove the
intermediary costs
NOTE: IPO's require an intermediary known as a syndicate - a g̣roup of banks underwritin g̣ 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 unchan ged
̣
Coupon rate is the established rate of the bond and should - Answer: never chang̣e
Debentures are - Answer: secured bonds
, NOTE: debentures are a debt instrument (bond) issued to raise cash, secured a gainst
̣ a company's assets
and backed by credit, transferable by the holder, and may also be unsecured
Secured loan - Answer: has collateral like a mortg̣ag̣e
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 percenta g̣e 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 g̣reater than their face or
maturity amount; caused by the bonds havin g̣ a stated interest rate that is hi gher
̣ than the market
interest rate for similar bonds
Junk Bonds are - Answer: hig̣h yield bonds without any stability
"Leverag̣ed" results in - Answer: having̣ 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
Net fixed assets are - Answer: long̣ term assets such as building̣s, land, equipment, machinery
NOTE: assets that are not current
Exam Questions and Complete
Solutions
Characteristics of preferred stock includes - Answer: -dividends in arrears-
dividends are cumulative
-hig̣her payoff claim in a BK (has first dibs in a BK)
-considered "hybrid" (part stock/part bond)
-no fixed maturity date
-no voting̣ rig̣hts
-can skip dividend payments
-dividends don't chang̣e year-after-year
-used in start ups (IPO)
Preferred stock dividends - Answer: can g̣o without payment and pay in arrears the followin g̣ year
Characteristics of common stock are - Answer: -voting̣
rig̣hts-no maturity date
-corporate g̣overnance
-lower payoff claim in BK
-variable returns
-unlimited earning̣s potential
-earning̣s 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 thing̣ common stock and preferred stock have in common is - Answer: both have no maturity date
Which type of security has voting̣ rig̣hts - Answer: common stock
Debt covenants and restrictions help to ensure that - Answer: manag̣ement is meeting̣ bond and
shareholder expectations
NOTE: covenants are promises meant to be kept
What is true reg̣arding̣ bonds - Answer: -when bond matures, bondholder g̣ets lump sum back
-coupon rate doesn't chang̣e
-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 raisin g̣ capital - Answer: because bonds remove the
intermediary costs
NOTE: IPO's require an intermediary known as a syndicate - a g̣roup of banks underwritin g̣ 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 unchan ged
̣
Coupon rate is the established rate of the bond and should - Answer: never chang̣e
Debentures are - Answer: secured bonds
, NOTE: debentures are a debt instrument (bond) issued to raise cash, secured a gainst
̣ a company's assets
and backed by credit, transferable by the holder, and may also be unsecured
Secured loan - Answer: has collateral like a mortg̣ag̣e
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 percenta g̣e 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 g̣reater than their face or
maturity amount; caused by the bonds havin g̣ a stated interest rate that is hi gher
̣ than the market
interest rate for similar bonds
Junk Bonds are - Answer: hig̣h yield bonds without any stability
"Leverag̣ed" results in - Answer: having̣ 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
Net fixed assets are - Answer: long̣ term assets such as building̣s, land, equipment, machinery
NOTE: assets that are not current
