WGU C214 Financial Mgmt Pass the OA
Characteristics of preferred stock includes - ANS-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 - ANScan go without payment and pay in arrears the following year
Characteristics of common stock are - ANS-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 - ANSpreferred stock (in an IPO)
What stock is considered a hybrid - ANSpreferred stock
One thing common stock and preferred stock have in common is - ANSboth have no maturity
date
Which type of security has voting rights - ANScommon stock
Debt covenants and restrictions help to ensure that - ANSmanagement is meeting bond and
shareholder expectations
NOTE: covenants are promises meant to be kept
What is true regarding bonds - ANS-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 - ANSrequired rate of return is equal to the coupon rate
, Why are bonds the primary method for raising capital - ANSbecause 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 - ANSconvertible bonds
What is the interest rate for annual payments of a bond known as - ANSthe 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 - ANSnever change
Debentures are - ANSsecured 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 - ANShas collateral like a mortgage
The amount repaid at the expiration date of a bond is - ANSPAR value
NOTE: expiration date is also known as maturity date PAR (or Face Value) is typically $1000
Duration measures - ANSthe 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 - ANSyears
A bond premium occurs when - ANSbonds 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 - ANShigh yield bonds without any stability
"Leveraged" results in - ANShaving 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 - ANSLEAST liquid of current assets
NOTE: current assets take less than 12 months to make liquid
Net fixed assets are - ANSlong term assets such as buildings, land, equipment, machinery
NOTE: assets that are not current
Characteristics of preferred stock includes - ANS-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 - ANScan go without payment and pay in arrears the following year
Characteristics of common stock are - ANS-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 - ANSpreferred stock (in an IPO)
What stock is considered a hybrid - ANSpreferred stock
One thing common stock and preferred stock have in common is - ANSboth have no maturity
date
Which type of security has voting rights - ANScommon stock
Debt covenants and restrictions help to ensure that - ANSmanagement is meeting bond and
shareholder expectations
NOTE: covenants are promises meant to be kept
What is true regarding bonds - ANS-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 - ANSrequired rate of return is equal to the coupon rate
, Why are bonds the primary method for raising capital - ANSbecause 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 - ANSconvertible bonds
What is the interest rate for annual payments of a bond known as - ANSthe 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 - ANSnever change
Debentures are - ANSsecured 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 - ANShas collateral like a mortgage
The amount repaid at the expiration date of a bond is - ANSPAR value
NOTE: expiration date is also known as maturity date PAR (or Face Value) is typically $1000
Duration measures - ANSthe 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 - ANSyears
A bond premium occurs when - ANSbonds 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 - ANShigh yield bonds without any stability
"Leveraged" results in - ANShaving 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 - ANSLEAST liquid of current assets
NOTE: current assets take less than 12 months to make liquid
Net fixed assets are - ANSlong term assets such as buildings, land, equipment, machinery
NOTE: assets that are not current
