WGU Financial Management C214

WGU Financial Management C214 Financial Securities (3 types) - CORRECT ANSWERS 1. Gov Securities(treasury bonds)- gov invest in natl defense to freeways. Loans provide by the public to gov. When tax revs fall short to cover expenditures, gov issues bonds from 60 days-30yrs. 2. Corporate Bonds- Google might be looking to invest another $50 billion in low-orbiting satellites; however, because of its size, the company cannot walk into a local bank hoping for a $50-billion loan. Instead, Google will likely issue bonds with a face value of $1,000 that make one or two annual coupon payments a year and might be paid back over a 20-year period. Corporate finance is NOT devoted to understanding various types of financial instruments; investments are. *Corporate finance focuses on the decision making by the management of the firm. 3. Stocks- share of ownership in a co. If Google did not want to borrow money from bondholders to finance the $50-billion low-orbiting satellite project, Google could sell shares of ownership in the company. Syndicate - CORRECT ANSWERS is a group that is temporarily formed to handle a bond or stock issue. Syndicates are generally made up of large investment banks or other types of institutional investors. These large investment banks that make up a syndicate might also be the underwriters of the security issue. An underwriter has the responsibility of determining the value of the security and then, in some cases, the underwriter will purchase all of the securities from the issuer and then sell them to other investors. Two ways a firm issuing a bond can place the bonds with a syndicate: 1. Competitive Sale- Those wishing to underwrite the bond issue will submit bids (on bond's prices and interest rate) to the issuing firm. Firm will then select the underwriter that offered the highest price and lowest interest rate. Underwriter will sell bonds to various investors at (hopefully) a slightly higher price than purchase price. 2. Negotiated Sale- like the competitive sale, a negotiated sale is the process of underwri Primary Markets (Stocks & Bonds) - CORRECT ANSWERS The primary market for stock issuance works in a similar way to the bond primary market. However, some terminology is different. A firm that is going public (or selling shares of ownership for the first time) is going to perform an initial public offering (IPO). These IPOs are sometimes called new equity offerings. However, much of the underwriting occurs in a similar manner, which we have discussed above