WGU C214 FINANCIAL MGMT PASS THE OA EXAM QUESTIONS AND ANSWERS

WGU C214 FINANCIAL MGMT PASS THE OA EXAM QUESTIONS AND
ANSWERS
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



A bond premium occurs when - CORRECT 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 - CORRECT ANSWER✅✅high yield bonds without any stability



"Leveraged" results in - CORRECT 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 - CORRECT ANSWER✅✅LEAST liquid of current assets

NOTE: current assets take less than 12 months to make liquid



Net fixed assets are - CORRECT ANSWER✅✅long term assets such as buildings, land, equipment,
machinery