Series 7 unit 1 equity securities UPDATED
ACTUAL Exam Questions and CORRECT
Answers
Which of the following have equity positions in a corporation?
Common stockholders.
Preferred stockholders.
Convertible bondholders.
Mortgage bondholders.
A) I and II.
B) I and III.
C) II and IV.
D) III and IV. - CORRECT ANSWER - Answer: A
Common and preferred stockholders have equity, or ownership positions. Bondholders
(mortgage or otherwise) are creditors, not owners.
A customer owns 1,000 shares of ABC corporation. Which of the following actions on the part of
ABC would dilute her equity?
A) 2-1 stock split.
B) Registered primary offering of shares.
C) Registered secondary offering of shares.
D) Payment of a 10% stock dividend. - CORRECT ANSWER - Answer: B
,An additional primary issue of shares would dilute a present shareholder's ownership, unless she
personally purchases a portion of the new shares (as in a rights offering). In a secondary offering,
ownership of existing outstanding shares is simply changing hands. With a stock dividend or
stock split, percent equity does not change.
An informal network of market makers that offers to trade securities NOT listed on an exchange
is called:
A) National Daily Quotation Service.
B) National Association of Securities Dealers Automated Quotations.
C) the over-the-counter market.
D) Archipelago Exchange (ArcaEx). - CORRECT ANSWER - Answer: C
This best describes the over-the-counter market which is an interdealer market linked by
computer terminals to Financial Industry Regulatory Authority (FINRA) member firms across
the country.
Common stockholders of a publicly traded corporation have which of the following rights and
privileges?
Residual claim to assets at dissolution.
Right to a vote for stock dividends to be paid.
Right to receive an audited financial report on an annual basis.
Claim against dividends in default.
A) I and IV.
B) II and III.
C) II and IV.
,D) I and III. - CORRECT ANSWER - Answer: D
Common stockholders of publicly traded companies have a residual claim to assets of a
corporation at dissolution and are entitled to receive an annual report containing audited financial
statements. Stockholders never get to vote on dividends.
A client has 100 shares of GHI when the stock undergoes a split. After the split, the client has:
A) a proportionately increased interest in the company.
B) greater exposure.
C) no effective change in the value of the position.
D) a proportionately decreased interest in the company. - CORRECT ANSWER - Answer:
C
When a stock splits, the number of shares each stockholder has either increases or decreases (in
the case of a reverse split). The customer experiences no effective change in position because the
proportionate interest in the company remains the same.
After a company splits its stock 2 for 1, an investor who owns 100 shares receives:
A) another certificate for 100 shares.
B) another certificate for 200 shares.
C) notice that the invA 2-1 split does which of the following? - CORRECT ANSWER -
After a 2 for 1 split, the transfer agent will send the investor another certificate for 100 shares.
The investor is not required to return the existing stock certificate.
A 2-1 split does which of the following?
, Increases the number of outstanding shares.
Decreases retained earnings.
Decreases par value per share.
A) I, II and III.
B) I and III.
C) I and II.
D) II and III. - CORRECT ANSWER - Answer: B
After a 2-1 stock split, the number of outstanding shares doubles and the par value per share
decreases by half. Retained earnings are not affected.
If a stock undergoes a 1-5 reverse split, which of the following increases?
Market price per share.
Number of shares outstanding.
Earnings per share.
Market capitalization of the company.
A) I and II.
B) II and III.
C) III and IV.
D) I and III. - CORRECT ANSWER - Answer: D
After a reverse split, there will be fewer shares outstanding. As a result, market price and
earnings per share will increase. Overall, the market capitalization of the company will not
change.
ACTUAL Exam Questions and CORRECT
Answers
Which of the following have equity positions in a corporation?
Common stockholders.
Preferred stockholders.
Convertible bondholders.
Mortgage bondholders.
A) I and II.
B) I and III.
C) II and IV.
D) III and IV. - CORRECT ANSWER - Answer: A
Common and preferred stockholders have equity, or ownership positions. Bondholders
(mortgage or otherwise) are creditors, not owners.
A customer owns 1,000 shares of ABC corporation. Which of the following actions on the part of
ABC would dilute her equity?
A) 2-1 stock split.
B) Registered primary offering of shares.
C) Registered secondary offering of shares.
D) Payment of a 10% stock dividend. - CORRECT ANSWER - Answer: B
,An additional primary issue of shares would dilute a present shareholder's ownership, unless she
personally purchases a portion of the new shares (as in a rights offering). In a secondary offering,
ownership of existing outstanding shares is simply changing hands. With a stock dividend or
stock split, percent equity does not change.
An informal network of market makers that offers to trade securities NOT listed on an exchange
is called:
A) National Daily Quotation Service.
B) National Association of Securities Dealers Automated Quotations.
C) the over-the-counter market.
D) Archipelago Exchange (ArcaEx). - CORRECT ANSWER - Answer: C
This best describes the over-the-counter market which is an interdealer market linked by
computer terminals to Financial Industry Regulatory Authority (FINRA) member firms across
the country.
Common stockholders of a publicly traded corporation have which of the following rights and
privileges?
Residual claim to assets at dissolution.
Right to a vote for stock dividends to be paid.
Right to receive an audited financial report on an annual basis.
Claim against dividends in default.
A) I and IV.
B) II and III.
C) II and IV.
,D) I and III. - CORRECT ANSWER - Answer: D
Common stockholders of publicly traded companies have a residual claim to assets of a
corporation at dissolution and are entitled to receive an annual report containing audited financial
statements. Stockholders never get to vote on dividends.
A client has 100 shares of GHI when the stock undergoes a split. After the split, the client has:
A) a proportionately increased interest in the company.
B) greater exposure.
C) no effective change in the value of the position.
D) a proportionately decreased interest in the company. - CORRECT ANSWER - Answer:
C
When a stock splits, the number of shares each stockholder has either increases or decreases (in
the case of a reverse split). The customer experiences no effective change in position because the
proportionate interest in the company remains the same.
After a company splits its stock 2 for 1, an investor who owns 100 shares receives:
A) another certificate for 100 shares.
B) another certificate for 200 shares.
C) notice that the invA 2-1 split does which of the following? - CORRECT ANSWER -
After a 2 for 1 split, the transfer agent will send the investor another certificate for 100 shares.
The investor is not required to return the existing stock certificate.
A 2-1 split does which of the following?
, Increases the number of outstanding shares.
Decreases retained earnings.
Decreases par value per share.
A) I, II and III.
B) I and III.
C) I and II.
D) II and III. - CORRECT ANSWER - Answer: B
After a 2-1 stock split, the number of outstanding shares doubles and the par value per share
decreases by half. Retained earnings are not affected.
If a stock undergoes a 1-5 reverse split, which of the following increases?
Market price per share.
Number of shares outstanding.
Earnings per share.
Market capitalization of the company.
A) I and II.
B) II and III.
C) III and IV.
D) I and III. - CORRECT ANSWER - Answer: D
After a reverse split, there will be fewer shares outstanding. As a result, market price and
earnings per share will increase. Overall, the market capitalization of the company will not
change.
