Series 7 Chapter 1 Exam 2025
Questions and Answers
What is a security? - ANSWER✔✔-It is an investment that represents either an
ownership stake or a debt stake in a company.
Stock - ANSWER✔✔-Represents equity or ownership in a common, and bonds are a
loan to a company.
Balance Sheet - ANSWER✔✔-Summarizes the company's
-assets; what the company owns
-liabilities; what the company owes
-equity; the excess of the value of assets over the value of liabilities.
Net Worth - ANSWER✔✔-A company's net worth is computed by subtracting all
liabilities from the value of total assets. Assets - Liabilities = Net Worth
Issuance of Stock - ANSWER✔✔-A company issues stock as its primary means of
raising business capital. The investor who buys the stock owns a share in the company's
net worth. Each share entitles the owner to a portion of the company's profits and
dividends.
Common Stock - ANSWER✔✔-Can be classified by the common owner or investor in a
corp. It can be classified as authorized, issued, outstanding, and treasury.
Preferred Stock - ANSWER✔✔-It represents equity ownership in the corporation, but it
doesn't have the same voting rights or appreciation potential as common stock. Pays a
fixed dividend semiannual, and it has priority claims over common stock.
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 1
, Authorized Stock - ANSWER✔✔-the specific numbers of shares the company has
authorized to issue or sell.
Issued Stock - ANSWER✔✔-has been authorized and distributed to investors.
Outstanding Stock - ANSWER✔✔-includes any shares that a company has issued but
has not repurchased that is, stock the investor owned.
Treasury Stock - ANSWER✔✔-stock a corp. has issued and subsequently repurchased
from the public. A corp. buys back its stock for a number of reasons:
-increase earnings per share
-have an inventory of stock available to distribute as stock options, fund an employee
pension plan, and so on;
-use for future acquisitions.
Common stock values - ANSWER✔✔-The laws of supply and demand (based largely
on the perception of a company's profitability and business prospects) determine the
company's stock price in the market.
Par Value - ANSWER✔✔-For investors par value is meaningless. It is an arbitrary value
the company gives the stock in the company's articles of incorporation and has no effect
on the stocks market price.
Book Value - ANSWER✔✔-A stocks book value per share is a measure of how much a
common stockholder could expect to receive for each share if a corp. were liquidated.
Used by analysts, it is the difference between the value of the corp. tangible assets and
its liabilities divided by the number of shares outstanding.
Market Value - ANSWER✔✔-the price investors must pay to buy the stock, it is the
most familiar measure of a stocks value.
Common stock ownership voting rights - ANSWER✔✔-Common stockholders use their
voting rights to exercise control of a corp. by electing a board of directors. Investors can
vote on:
-issuance of convertible securities (dilutive to current stockholders) or additional
common stock.
-substantial changes in the corp. business, such as mergers or acquisitions
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 2
Questions and Answers
What is a security? - ANSWER✔✔-It is an investment that represents either an
ownership stake or a debt stake in a company.
Stock - ANSWER✔✔-Represents equity or ownership in a common, and bonds are a
loan to a company.
Balance Sheet - ANSWER✔✔-Summarizes the company's
-assets; what the company owns
-liabilities; what the company owes
-equity; the excess of the value of assets over the value of liabilities.
Net Worth - ANSWER✔✔-A company's net worth is computed by subtracting all
liabilities from the value of total assets. Assets - Liabilities = Net Worth
Issuance of Stock - ANSWER✔✔-A company issues stock as its primary means of
raising business capital. The investor who buys the stock owns a share in the company's
net worth. Each share entitles the owner to a portion of the company's profits and
dividends.
Common Stock - ANSWER✔✔-Can be classified by the common owner or investor in a
corp. It can be classified as authorized, issued, outstanding, and treasury.
Preferred Stock - ANSWER✔✔-It represents equity ownership in the corporation, but it
doesn't have the same voting rights or appreciation potential as common stock. Pays a
fixed dividend semiannual, and it has priority claims over common stock.
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 1
, Authorized Stock - ANSWER✔✔-the specific numbers of shares the company has
authorized to issue or sell.
Issued Stock - ANSWER✔✔-has been authorized and distributed to investors.
Outstanding Stock - ANSWER✔✔-includes any shares that a company has issued but
has not repurchased that is, stock the investor owned.
Treasury Stock - ANSWER✔✔-stock a corp. has issued and subsequently repurchased
from the public. A corp. buys back its stock for a number of reasons:
-increase earnings per share
-have an inventory of stock available to distribute as stock options, fund an employee
pension plan, and so on;
-use for future acquisitions.
Common stock values - ANSWER✔✔-The laws of supply and demand (based largely
on the perception of a company's profitability and business prospects) determine the
company's stock price in the market.
Par Value - ANSWER✔✔-For investors par value is meaningless. It is an arbitrary value
the company gives the stock in the company's articles of incorporation and has no effect
on the stocks market price.
Book Value - ANSWER✔✔-A stocks book value per share is a measure of how much a
common stockholder could expect to receive for each share if a corp. were liquidated.
Used by analysts, it is the difference between the value of the corp. tangible assets and
its liabilities divided by the number of shares outstanding.
Market Value - ANSWER✔✔-the price investors must pay to buy the stock, it is the
most familiar measure of a stocks value.
Common stock ownership voting rights - ANSWER✔✔-Common stockholders use their
voting rights to exercise control of a corp. by electing a board of directors. Investors can
vote on:
-issuance of convertible securities (dilutive to current stockholders) or additional
common stock.
-substantial changes in the corp. business, such as mergers or acquisitions
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 2
