Series 7 Chapter 1 UPDATED Exam
Questions and CORRECT Answers
A corporate stockholder has a "residual claim". This refers to the stockholder's right to: -
CORRECT ANSWER - Corporate assets remaining at dissolution after the satisfaction of
senior obligations
Mr. Smith is short 100 shares of ABC common stock when ABC pays a 10% stock dividend. On
the morning of the ex-date Mr. Smith would - CORRECT ANSWER - owe 10 additional
shares of ABC common stock
July
Sun. Mon. Tues. Wed. Thur. Fri. Sat.
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8 9 10 11 12 13 14
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22 23 24 25 26 27 28
29 30 31
ABC Corp. has declared a cash dividend to owners of record July 17. The last date for the
customer to buy the stock and still receive the dividend is: - CORRECT ANSWER - July
12
EXPLANATION
Using the month of July calendar, you would count back 2 business days from July 17, which
tells you the ex-date is July 13, therefore to receive the dividend the investor would have to own
the stock the day before ex-date or July 12th.
Which of the following companies is most likely to pay a stock dividend? - CORRECT
ANSWER - A company with a small cash balance and earnings growing at 20% per year
EXPLANATION
, A company with a small cash balance would be the company most likely to pay a stock (shares
of stock) dividend.
An issuer would most likely call in its preferred stock when: - CORRECT ANSWER -
interest rates are falling
EXPLANATION
Issuers would most likely call in an outstanding preferred or bond when interest rates are falling
because they could issue new securities with a lower dividend or interest rate and reduce their
expenses.
Which of the following are true of warrants? - CORRECT ANSWER - The market price of
the stock is below the exercise price when they are issued.
EXPLANATION
Because warrants are used as an incentive or "sweetener," the exercise price of the warrant will
be more than the offering price of the new issue. As time passes and the market price of the new
issue rises, the warrant will become valuable.
Which of the following items would be used to calculate the Current Yield on common stock? -
CORRECT ANSWER - Current market value of common stock
Annual dividend on common stock
EXPLANATION
The Current Yield formula is:
Annual Dividend divided by
Market Value of Common Stock
Which of the following are true concerning a Real Estate Investment Trust (REIT)? - CORRECT
ANSWER - It must pay out a specified percentage of its earnings. It makes money on the
difference between its interest expenses and the interest it receives.
EXPLANATION
In order to qualify as an REIT, it must pay out 90% to shareholders. The REIT makes its profit
on the difference between the interest expenses and the interest it receives. It can make short-
Questions and CORRECT Answers
A corporate stockholder has a "residual claim". This refers to the stockholder's right to: -
CORRECT ANSWER - Corporate assets remaining at dissolution after the satisfaction of
senior obligations
Mr. Smith is short 100 shares of ABC common stock when ABC pays a 10% stock dividend. On
the morning of the ex-date Mr. Smith would - CORRECT ANSWER - owe 10 additional
shares of ABC common stock
July
Sun. Mon. Tues. Wed. Thur. Fri. Sat.
1234567
8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 25 26 27 28
29 30 31
ABC Corp. has declared a cash dividend to owners of record July 17. The last date for the
customer to buy the stock and still receive the dividend is: - CORRECT ANSWER - July
12
EXPLANATION
Using the month of July calendar, you would count back 2 business days from July 17, which
tells you the ex-date is July 13, therefore to receive the dividend the investor would have to own
the stock the day before ex-date or July 12th.
Which of the following companies is most likely to pay a stock dividend? - CORRECT
ANSWER - A company with a small cash balance and earnings growing at 20% per year
EXPLANATION
, A company with a small cash balance would be the company most likely to pay a stock (shares
of stock) dividend.
An issuer would most likely call in its preferred stock when: - CORRECT ANSWER -
interest rates are falling
EXPLANATION
Issuers would most likely call in an outstanding preferred or bond when interest rates are falling
because they could issue new securities with a lower dividend or interest rate and reduce their
expenses.
Which of the following are true of warrants? - CORRECT ANSWER - The market price of
the stock is below the exercise price when they are issued.
EXPLANATION
Because warrants are used as an incentive or "sweetener," the exercise price of the warrant will
be more than the offering price of the new issue. As time passes and the market price of the new
issue rises, the warrant will become valuable.
Which of the following items would be used to calculate the Current Yield on common stock? -
CORRECT ANSWER - Current market value of common stock
Annual dividend on common stock
EXPLANATION
The Current Yield formula is:
Annual Dividend divided by
Market Value of Common Stock
Which of the following are true concerning a Real Estate Investment Trust (REIT)? - CORRECT
ANSWER - It must pay out a specified percentage of its earnings. It makes money on the
difference between its interest expenses and the interest it receives.
EXPLANATION
In order to qualify as an REIT, it must pay out 90% to shareholders. The REIT makes its profit
on the difference between the interest expenses and the interest it receives. It can make short-
