C214 WGU STUDY GUIDE QUESTIONS WITH VERIFIED SOLUTIONS 2025

C214 WGU STUDY GUIDE QUESTIONS
WITH VERIFIED SOLUTIONS 2025
1.FinancialQSecuritiesQ(3Qtypes)Q-QCORRECTQANSWERQ-1.QGovQSecurities(treasuryQbonds)-
QgovQinvestQinQnatlQdefenseQtoQfreeways.QLoansQprovideQbyQtheQpublicQtoQgov.QWhenQtaxQrevsQfallQshortQto

QcoverQexpenditures,QgovQissuesQbondsQfromQ60Qdays-30yrs.Q




2.QCorporateQBonds-QGoogleQmightQbeQlookingQtoQinvestQanotherQ$50QbillionQinQlow-
orbitingQsatellites;Qhowever,QbecauseQofQitsQsize,QtheQcompanyQcannotQwalkQintoQaQlocalQbankQhopingQforQ
aQ$50-
billionQloan.QInstead,QGoogleQwillQlikelyQissueQbondsQwithQaQfaceQvalueQofQ$1,000QthatQmakeQoneQorQtwoQa
nnualQcouponQpaymentsQaQyearQandQmightQbeQpaidQbackQoverQaQ20-yearQperiod.

CorporateQfinanceQisQNOTQdevotedQtoQunderstandingQvariousQtypesQofQfinancialQinstruments;Qinvestment
sQare.Q*CorporateQfinanceQfocusesQonQtheQdecisionQmakingQbyQtheQmanagementQofQtheQfirm.



3.QStocks-
QshareQofQownershipQinQaQco.QIfQGoogleQdidQnotQwantQtoQborrowQmoneyQfromQbondholdersQtoQfinanceQth

eQ$50-billionQlow-orbitingQsatelliteQproject,QGoogleQcouldQsellQsharesQofQownershipQinQtheQcompany.



SyndicateQ-QCORRECTQANSWERQ-
isQaQgroupQthatQisQtemporarilyQformedQtoQhandleQaQbondQorQstockQissue.QSyndicatesQareQgenerallyQmadeQ
upQofQlargeQinvestmentQbanksQorQotherQtypesQofQinstitutionalQinvestors.QTheseQlargeQinvestmentQbanksQth
atQmakeQupQaQsyndicateQmightQalsoQbeQtheQunderwritersQofQtheQsecurityQissue.QAnQunderwriterQhasQtheQr
esponsibilityQofQdeterminingQtheQvalueQofQtheQsecurityQandQthen,QinQsomeQcases,QtheQunderwriterQwillQpu
rchaseQallQofQtheQsecuritiesQfromQtheQissuerQandQthenQsellQthemQtoQotherQinvestors.Q



TwoQwaysQaQfirmQissuingQaQbondQcanQplaceQtheQbondsQwithQaQsyndicate:Q



1.QCompetitiveQSale-
QThoseQwishingQtoQunderwriteQtheQbondQissueQwillQsubmitQbidsQ(onQbond'sQpricesQandQinterestQrate)QtoQt

heQissuingQfirm.QFirmQwillQthenQselectQtheQunderwriterQthatQofferedQtheQhighestQpriceQandQlowestQinteres
tQrate.QUnderwriterQwillQsellQbondsQtoQvariousQinvestorsQatQ(hopefully)QaQslightlyQhigherQpriceQthanQpurch
aseQprice.



2.QNegotiatedQSale-
QlikeQtheQcompetitiveQsale,QaQnegotiatedQsaleQisQtheQprocessQofQunderwritersQsubmittingQproposalsQinclud

,ingQbids.QHowever,QthisQlatterQtypeQofQsaleQinvolvesQaQmoreQthoroughQinterviewQprocessQwithQtheQunder
writers.QFurther,QtheQissuingQfirmQwillQcarefullyQselectQtheQmanagementQteamQthatQwillQplaceQtheseQbond
s.



PrimaryQMarketsQ(StocksQ&QBonds)Q-QCORRECTQANSWERQ-
TheQprimaryQmarketQforQstockQissuanceQworksQinQaQsimilarQwayQtoQtheQbondQprimaryQmarket.QHowever,Qs
omeQterminologyQisQdifferent.QAQfirmQthatQisQgoingQpublicQ(orQsellingQsharesQofQownershipQforQtheQfirstQti
me)QisQgoingQtoQperformQanQinitialQpublicQofferingQ(IPO).QTheseQIPOsQareQsometimesQcalledQnewQequityQof
ferings.QHowever,QmuchQofQtheQunderwritingQoccursQinQaQsimilarQmanner,QwhichQweQhaveQdiscussedQabov
e.



SecondaryQMarketsQ(2Qtypes)Q-QCORRECTQANSWERQ-1.QAuctionQMarket-
QanQauctionQfinancialQmarketQhasQaQphysicalQlocationQandQpricesQareQdeterminedQbyQtheQhighestQpriceQanQ

investorQisQwillingQtoQpay.QTheQNewQYorkQStockQExchangeQ(NYSE),QtheQworld'sQlargestQsecondaryQfinancialQ
market.QNYSEQhasQaQsingleQdealerQthatQprovidesQliquidity.Q

*SomeQhighQfrequencyQtradersQprovideQliquidityQtoQtheQrestQofQtheQmarket.Q



*IfQprovidingQliquidityQbecomesQmoreQrisky,QthenQdealersQwillQincreaseQtheQspread.Q



*IfQtheQpriceQofQaQparticularQstockQbeginsQtoQheavilyQfluctuate,QthenQtheQspecialistQwillQINCREASEQtheQspr
ead.Q



2.QDealerQmarket-
QdoesQnotQrequireQaQphysicalQlocation.QSecuritiesQareQboughtQandQsoldQthroughQaQnetworkQofQdealersQtha

tQtradeQforQthemselves.QaQdealerQmightQholdQinventoryQforQparticularQstockQandQwillingQtoQsellQtoQthoseQt
hatQdemandQtheQstockQandQbuyQfromQthoseQthatQwillQsupplyQtheQstock.QNASDAQ,Q(second-
largestQsecondaryQmarketQworldly),QisQexampleQofQaQdealerQmarket.QMostQstocksQthatQareQlistedQonQNASD
AQQhaveQmultipleQdealersQforQeach.QTheQideaQbehindQhavingQmultipleQdealersQprovidingQliquidityQtoQinves
torsQisQthatQtheQdealersQmustQcompeteQwithQoneQanother,QthusQloweringQtheQcostQofQtransacting.



SpreadQ-QCORRECTQANSWERQ-TheQdifferenceQbetweenQtheQbidQpriceQandQtheQaskQprice.



IfQtheQpriceQofQaQparticularQstockQbeginsQtoQheavilyQfluctuate,QthenQtheQspecialistQwillQINCREASEQtheQspre
ad.

,StockQOrdersQ(2Qtypes)Q-QCORRECTQANSWERQ-MarketQorders-
QareQtimeQsensitiveQandQwouldQexecuteQatQtheQcurrentQaskQprice.Q




LimitQorders-Q

-BuyQLimitQOrderQcanQonlyQbeQexecutedQatQtheQlimitQpriceQorQlower



-SellQLimitQOrderQcanQonlyQbeQexecutedQatQtheQlimitQpriceQorQhigher.



MarketQPricesQ-QCORRECTQANSWERQ--
ConveyQinfoQtoQconsumers.QPerhapsQtheQnewlyQpricedQmilkQisQofQlowerQqualityQorQtheQgrocerQhasQexcessQi
nventory.



-
AffectQincentives.QForQinstance,QaQsophisticatedQconsumerQmightQnotQbeQinQtheQmarketQforQaQbrandQnewQ
carQatQitsQcurrentQprice.QHowever,QtheQdealershipQcouldQincentivizeQtheQconsumerQbyQdramaticallyQloweri
ngQtheQprice.Q



-
AffectQtheQdistributionQofQincome.QNearlyQallQstudentsQwouldQagreeQthatQtheQpriceQofQgarbageQcollectionQ
isQlowerQthanQtheQpriceQofQhealthQcare.



CalculatingQSecurityQReturnsQ-QCORRECTQANSWERQ-twoQtypes:



1.QDollarQreturns-
QareQcalculatedQbyQtakingQtheQdifferenceQbetweenQtheQpreviousQpriceQandQcurrentQprice,QplusQanyQadditio

nalQcashQflowQthatQcameQfromQtheQsecurity.Q(EX:QbondsQpayQaQcouponQ(orQinterest)QpaymentQ1QorQ2Qtimes
Qyearly;QstocksQpayQaQdividend.QMathematically,QdollarQreturnsQareQcalculatedQinQtheQfollowingQway.


Q



PtQ-QPt-1Q+QCFt

InQthisQequation,QPtQisQtheQsoldQprice,QPt-
1QisQtheQboughtQprice,QandQCFtQisQtheQcashQflowQ(couponsQforQbonds;QdividendsQforQstocks).
Q

, 2.QPercentageQreturns-
QPercentageQreturnsQareQcalculatedQbyQsimplyQdividingQtheQdollarQreturnsQbyQtheQpriceQofQtheQsecurityQatQ

timeQt-1,QorQtheQpreviousQtimeQperiod.



Pt-Pt-1/Pt-1Q+QCFt/Pt-1



MaximizingQShareholderQValueQ-QCORRECTQANSWERQ-ThereQareQtwoQissues:



1.QAgencyQcosts-
QareQrealQcostsQandQtheQwayQthatQmostQfirmsQmitigateQsomeQofQtheseQcostsQisQbyQaligningQmanagers'Qinter

estsQwithQshareholders'Qinterests;QtheyQareQcostsQbyQmanagementQnotQactingQinQtheQbestQinterestsQofQthe
Qshareholders;QasymmetricalQcosts.QMostQcommonly,QmanagementQmightQbeQcompensatedQwithQsharesQ

ofQownershipQinQtheQcompanyQorQtakeQonQprojectsQjustQbecauseQtheyQwantQto.



2.QFocusingQsolelyQonQprofits-
Q(unethicalQmaximization),QinQsomeQcases,Q(EnronQ2001),QtheQpursuitQofQprofitQhasQledQtoQunethicalQbeha

vior.QHowever,QprofitableQbusinessesQareQemployingQotherQworkersQandQareQprovidingQtheirQemployeesQt
heQmeansQtoQconsumeQgoodsQandQservicesQfromQotherQbusinessesQinQtheQeconomy.



FinanceQvQAccountingQ-QCORRECTQANSWERQ-Accounting-QisQbackward-lookingQandQriskQfree.

Finance-QisQforward-lookingQandQinvolvesQmassiveQuncertainty.



AccrualQAccountingQ&QMatchingQPrincipleQ-QCORRECTQANSWERQ-
(regardlessQofQwhenQaQcompanyQincursQcostQorQrevenue,QitQisQreportedQonlyQwhenQtheQassociatedQcostQor
QrevenueQisQrecognized.QNeitherQCOGSQnotQrevenueQrepresentsQactualQcash.)




allowsQmanagersQtoQdecideQwhatQisQ"recognized"QonQtheQfinancialQstatements.QAccrualQaccounting:QReve
nuesQareQrecognizedQwhenQtheQearningsQprocessQisQcomplete;QexpensesQareQ"matched"QtoQrecognizedQre
venues.Q

*TheQaccrualQsystemQalsoQemploysQtheQmatchingQprinciple.



QTheQmatchingQprincipleQrequiresQthatQrevenueQrecognizedQmustQbeQmatchedQwithQtheQexpensesQincurre
dQtoQgenerateQtheQrevenue.Q