WGU C214 Financial Mgmt Pass the OA Latest Version 2023 2024 Guaranteed Success
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 1 / 3
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
- / 3
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
NOTE: assets that are not current
A/P represents money paid to - CORRECT ANSWER -suppliers for what is bought on credit and amount owed by a business to suppliers by agreement
NOTE: A/P is supplies, inventory, or PP&E
Notes payable involves - CORRECT ANSWER -an explicit interest bearing arrangement with the lender at interest cost
NOTE: notes payable is a long-term liability
Current liabilities are listed in order of - CORRECT ANSWER-maturity
NOTE: current liabilities are to be paid within 12 months
- / 3