FFM Final Exam Study Guide with
Complete Solutions 2025
common stock - ANSWER the most basic form of ownership of a corporation
residual claim - ANSWER common stockholders have a right to share in the income
and assets of a corporation only after higher-priority claims are satisfied
voting rights - ANSWER the proportionate authority to express an opinion or choice in
matters affecting the company
preferred stock - ANSWER a type of fixed-income ownership security in a corporation.
Owners receive a fixed dividend per share that corporations are required to distribute
before any dividends are paid out to common stockholders. They receive no extra
income from the stock other than their fixed dividend, even when the firm is highly
profitable. The market price of preferred stock is sensitive to changes in interest rates.
They rarely have voting privileges
cumulative preferred stock - ANSWER preferred stock for which dividends must be
paid, including any skipped dividends, before dividends go to common stockholders
noncumulative preferred stock - ANSWER the preferred stockholders would have no
claim to previously skipped dividends
convertible preferred stock - ANSWER can be exchanged at the option of
the stockholder for a specified number of shares of common stock
income stock - ANSWER a stock that may not grow too quickly, but year after year
pays a cash dividend higher than that offered by most companies
, growth stock - ANSWER the stock of a company that offers the promise of much higher
profits tomorrow and has a consistent record of relatively rapid growth in earnings in
all economic conditions
value stocks - ANSWER a stock that tends to trade at a low price relative to its company
fundamentals (dividends, earnings, sales, and so on) and thus is considered
undervalued by a value investor
blue chip stocks - ANSWER stocks that have been around for a long time, have a well-
regarded reputation, dominate its industry and are known for being solid, relatively
safe investments
large cap stocks - ANSWER those firms valued at or more than $10 billion
mid cap stocks - ANSWER - those firms valued at $2 billion to $10 billion
small cap stocks - ANSWER those firms valued at $300 million to $2 billion
investment grade bonds - ANSWER - offer investors reasonable certainty of
regularly receiving periodic income (interest) and retrieving the amount originally
invested (principle)
speculative grade bonds - ANSWER - long-term, high-risk, high-interest-rate
corporate (or municipal) IOUs issued by companies (or municipalities) with poor or
no credit ratings. Also called junk bonds or high-yield bonds
corporate bonds - ANSWER interest bearing certificates of long-term debt issued by
a corporation.
Complete Solutions 2025
common stock - ANSWER the most basic form of ownership of a corporation
residual claim - ANSWER common stockholders have a right to share in the income
and assets of a corporation only after higher-priority claims are satisfied
voting rights - ANSWER the proportionate authority to express an opinion or choice in
matters affecting the company
preferred stock - ANSWER a type of fixed-income ownership security in a corporation.
Owners receive a fixed dividend per share that corporations are required to distribute
before any dividends are paid out to common stockholders. They receive no extra
income from the stock other than their fixed dividend, even when the firm is highly
profitable. The market price of preferred stock is sensitive to changes in interest rates.
They rarely have voting privileges
cumulative preferred stock - ANSWER preferred stock for which dividends must be
paid, including any skipped dividends, before dividends go to common stockholders
noncumulative preferred stock - ANSWER the preferred stockholders would have no
claim to previously skipped dividends
convertible preferred stock - ANSWER can be exchanged at the option of
the stockholder for a specified number of shares of common stock
income stock - ANSWER a stock that may not grow too quickly, but year after year
pays a cash dividend higher than that offered by most companies
, growth stock - ANSWER the stock of a company that offers the promise of much higher
profits tomorrow and has a consistent record of relatively rapid growth in earnings in
all economic conditions
value stocks - ANSWER a stock that tends to trade at a low price relative to its company
fundamentals (dividends, earnings, sales, and so on) and thus is considered
undervalued by a value investor
blue chip stocks - ANSWER stocks that have been around for a long time, have a well-
regarded reputation, dominate its industry and are known for being solid, relatively
safe investments
large cap stocks - ANSWER those firms valued at or more than $10 billion
mid cap stocks - ANSWER - those firms valued at $2 billion to $10 billion
small cap stocks - ANSWER those firms valued at $300 million to $2 billion
investment grade bonds - ANSWER - offer investors reasonable certainty of
regularly receiving periodic income (interest) and retrieving the amount originally
invested (principle)
speculative grade bonds - ANSWER - long-term, high-risk, high-interest-rate
corporate (or municipal) IOUs issued by companies (or municipalities) with poor or
no credit ratings. Also called junk bonds or high-yield bonds
corporate bonds - ANSWER interest bearing certificates of long-term debt issued by
a corporation.
