WGU C214 Financial Mgmt Pass the OA Questions and Answers 100% Correct

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WGU C214 Financial Mgmt Pass the OA Questions and Answers 100% Correct Characteristics of preferred stock includes ✔✔-dividends in arrears -dividends are cumulative -higher payoff claim in a B ... K (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 A bond premium occurs when ✔✔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 ✔✔high yield bonds without any stability "Leveraged" results in ✔✔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 ✔✔LEAST liquid of current assets NOTE: current assets take less than 12 months to make liquid Net fixed assets are ✔✔long term assets such as buildings, land, equipment, machinery NOTE: assets that are not current A/P represents money paid to ✔✔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 ✔✔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 [Show More]

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