WGU C214 Finance (Ch 1-15) Questions and Answers Already Passed

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WGU C214 Finance (Ch 1-15) Questions and Answers Already Passed Duration ✔✔Compares the impact of interest rate changes on a bond. How many percentage points the price of a bond will go up/down... if interest rates go down/up. Multiply decimal interest x percentage. Inverse Price Relationship ✔✔When interest rates drop, bond rates go up. When interest rates rise, bond rates go down. Sensitivity ✔✔How sensitive a bond is to fluctuating interest rates (calculated with duration) Debenture ✔✔Bond that has no collateral Par Value ✔✔Face value of a bond (usually 1k) Coupon Rate ✔✔Interest rate of the bond, payable in installments. Cannot be changed for the life of the bond. Yield to Maturity ✔✔rate of return on a bond Affirmative covenants ✔✔things firm promises to do negative covenants ✔✔things firm promises to not do current yield of a bond ✔✔coupon payment divided by bond amount. NOT the same as YTM. Subordinated debenture ✔✔debentures that take last place in a payoff Zeros ✔✔bonds that pay no coupon, but sell at a lower price. Eurobond ✔✔Pays out in a non-domestic currency (US bond in europe that pays in dollars) Foreign Bond ✔✔Bond floated by another country but that is payable in the domestic currency (chinese debt payable in dollars floated in the us) Muni-bonds ✔✔floated by local govts to fund infrastructure, exempt from taxes. Convertible bonds ✔✔can be converted into equity securities. Junk Bonds ✔✔bond that is rated BB or below. higher yield and higher risk. Primary Factors influencing bond sensitivity ✔✔Coupon rate, time to maturity (primary factor). Primary financial instruments ✔✔stocks and bonds Syndicate ✔✔Group that is formed to handle a stock or bond issue. Made up of large investment banks or investors. They may also underwrite. Competitive Sale ✔✔underwriters will submit bids, firm will select lowest interest rate, highest price. Negotiated sale ✔✔Firm will investigate underwriter bids and will negotiate after more investigation. Secondary Markets ✔✔Where stocks are traded after IPO. "the stock market" Auction financial Market ✔✔Has a physical location. NYSE. Uses specialists. Dealer (stock) market ✔✔does not require a physical location. Uses a network of dealers. NASDAQ. Specialist ✔✔provides liquidity in the stock market (NYSE) and sets the spread. ASK Price ✔✔Minimum price sellers are willing to sell for BID price ✔✔the maximum price buyers are willing to 'bid'/Pay Market Order ✔✔executes at the market price Limit Order ✔✔executes at the price requested, if available. Calculating a simple stock dollar return ✔✔Price (new) - Price (old) + div or coupon Calculating a simple stock percentage return ✔✔{Price (new) - Price old +DIV}/ Price old+ X 100 Agency Costs ✔✔Costs that are incurred when management does not act in the best interest of shareholders. Indirect method starts with... ✔✔Net income! Formula for CFO ✔✔NI+Depreciation expense + changes in operating accounts Increase in an asset account means.. ✔✔cash has left the firm. Considered an outflow, decrease in cash on a cash flow statement. Increase in a liability account means... ✔✔Cash has come into the firm. Considered inflow, increase cash on cash flow statement. Formula for CFI ✔✔Change in gross PP&E OR change in net PPE plus depreciation. Formula to calculate dividends ✔✔DIV = (Old RE plus NI) - new RE Formula to calculate NI ✔✔NI=Change in RE +divs Formula to calculate new RE ✔✔New RE = old RE +NI - DIVS Free Cash Flow ✔✔Distributable Cash - can be distributed after funding required reinvestment in PP&E. Free Cash Flow Formula (F) ✔✔FCFF= EBIT (1-tax) + depr - change in CAPEX(CFI) - increase in NWC Free Cash Flow Formula (Equity holders) ✔✔FCFE = NI + Depreciation - CAPEX - Increases in NWC + Increases in Debt Current Ratio (L) ✔✔higher = better likelihood company can meet short term obligations. current assets/current liabilities Quick Ratio (L) ✔✔current assets - inventory/current liabilities. greater ability to meet ST obligations since it removes the slower moving inventory. AR Turnover/Average collection Period (L) ✔✔how often AR turns over and in how many days. Inventory turnover/days on hand (L) ✔✔ [Show More]

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