Exam (elaborations)
WGU C214 Financial Mgmt Pass the Objective Assessment Study Guide.
- Course
- WGU C214
- Institution
- Western Governors University
WGU C214 Financial Mgmt Pass the Objective Assessment Study Guide.
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WGU C214 Financial Mgmt Pass the Objective Assessment Study GuideCharacteristics of preferred stock includes - ✔ -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 - ✔ can go without payment and pay in arrears the following year
Characteristics of common stock are - ✔ -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 - ✔ preferred stock (in an IPO)
What stock is considered a hybrid - ✔ preferred stock
One thing common stock and preferred stock have in common is - ✔ both have no maturity date
Which type of security has voting rights - ✔ common stock
Debt covenants and restrictions help to ensure that - ✔ management is meeting bond and shareholder expectations
NOTE: covenants are promises meant to be kept
What is true regarding bonds - ✔ -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 - ✔ required rate of return is equal to the coupon rate
Why are bonds the primary method for raising capital - ✔ 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 - ✔ convertible bonds
What is the interest rate for annual payments of a bond known as - ✔ 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 - ✔ never change
Debentures are - ✔ 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 - ✔ has collateral like a mortgage
The amount repaid at the expiration date of a bond is - ✔ PAR value
NOTE: expiration date is also known as maturity date PAR (or Face Value) is typically $1000
Duration measures - ✔ 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 - ✔ years
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