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