Series 7 - Security & Equity UPDATED
ACTUAL Exam Questions and CORRECT
Answers
A stock split - CORRECT ANSWER - results in more outstanding shares at a lower par
value per share. (like have 2 nickels instead of 1 dime)
a 5:4 stock split will result in - CORRECT ANSWER - each shareholder's proportionate
equity will be unchanged - Since each shareholder will receive additional stock, the proportional
equity will remain the same.
A change in earnings would affect the price of security the most? - CORRECT ANSWER -
Common stock - as owners, common shareholders have a claim on the earnings of the firm.
(junior security)
a 2-for-1 stock split - CORRECT ANSWER - the share price is reduced by half, the
number of shares doubles
The rate on an adjustable preferred stock may be indexed to the - CORRECT ANSWER -
Treasury bill rate
Stock undergoes a 1-5 reverse split, which increases? - CORRECT ANSWER - Market
price per share and earnings per share
Statutory voting - CORRECT ANSWER - stockholder owns 200 shares of common stock,
6 candidates, 3 seats: could cast votes 200 votes for each of 3 directors
Corporations must have stockholder approval to - CORRECT ANSWER - issue
convertible bonds
, Decisions made by the BOD that do not require stockholder vote include: - CORRECT
ANSWER - -Repurchase of stock for its treasury
-Declaration of a stock dividend
-Declaration of a cash dividend
(Do not vote on dividend matters)
Defeasement/"pre-refunding" - CORRECT ANSWER - Issuing one bond to call an
outstanding bond at a future date (escrowed funds)
Call premium - CORRECT ANSWER - issuer pays above par to redeem the bonds early.
(call price - par)
Serial bonds - CORRECT ANSWER - pay off part of the principal through serial
maturities and eliminates interest costs on the matured bonds
Shareholders vote on: - CORRECT ANSWER - stock splits, board members and issuance
of additional equity related securities such as common stock, preferred stock and convertible
securities
Preemptive rights - CORRECT ANSWER - give investors the right to maintain a
proportionate interest in a company's stock
Common stock can be classified as - CORRECT ANSWER - Authorized, outstanding,
issued and treasury
Preferred stock - CORRECT ANSWER - Ownership in a corporation, pays a fixed,
semiannual dividend and has priority claims over common stock.
(inverse relationship between price and interest rates)
Net worth - CORRECT ANSWER - assets - liabilities
ACTUAL Exam Questions and CORRECT
Answers
A stock split - CORRECT ANSWER - results in more outstanding shares at a lower par
value per share. (like have 2 nickels instead of 1 dime)
a 5:4 stock split will result in - CORRECT ANSWER - each shareholder's proportionate
equity will be unchanged - Since each shareholder will receive additional stock, the proportional
equity will remain the same.
A change in earnings would affect the price of security the most? - CORRECT ANSWER -
Common stock - as owners, common shareholders have a claim on the earnings of the firm.
(junior security)
a 2-for-1 stock split - CORRECT ANSWER - the share price is reduced by half, the
number of shares doubles
The rate on an adjustable preferred stock may be indexed to the - CORRECT ANSWER -
Treasury bill rate
Stock undergoes a 1-5 reverse split, which increases? - CORRECT ANSWER - Market
price per share and earnings per share
Statutory voting - CORRECT ANSWER - stockholder owns 200 shares of common stock,
6 candidates, 3 seats: could cast votes 200 votes for each of 3 directors
Corporations must have stockholder approval to - CORRECT ANSWER - issue
convertible bonds
, Decisions made by the BOD that do not require stockholder vote include: - CORRECT
ANSWER - -Repurchase of stock for its treasury
-Declaration of a stock dividend
-Declaration of a cash dividend
(Do not vote on dividend matters)
Defeasement/"pre-refunding" - CORRECT ANSWER - Issuing one bond to call an
outstanding bond at a future date (escrowed funds)
Call premium - CORRECT ANSWER - issuer pays above par to redeem the bonds early.
(call price - par)
Serial bonds - CORRECT ANSWER - pay off part of the principal through serial
maturities and eliminates interest costs on the matured bonds
Shareholders vote on: - CORRECT ANSWER - stock splits, board members and issuance
of additional equity related securities such as common stock, preferred stock and convertible
securities
Preemptive rights - CORRECT ANSWER - give investors the right to maintain a
proportionate interest in a company's stock
Common stock can be classified as - CORRECT ANSWER - Authorized, outstanding,
issued and treasury
Preferred stock - CORRECT ANSWER - Ownership in a corporation, pays a fixed,
semiannual dividend and has priority claims over common stock.
(inverse relationship between price and interest rates)
Net worth - CORRECT ANSWER - assets - liabilities
