FINRA Series 7: Chapter 1 || with 100% Accurate Solutions.
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Course
FINRA Series 7: Chapter 1
Institution
FINRA Series 7: Chapter 1
Security correct answers an investment that represents either an ownership stake or a debt stake in a company. An investor becomes part owner in a company by buying shares of the company's stock.
Debt security correct answers usually acquired by buying a company's bonds
Debt investment correc...
FINRA Series 7: Chapter 1 || with 100% Accurate Solutions.
Security correct answers an investment that represents either an ownership stake or a debt stake
in a company. An investor becomes part owner in a company by buying shares of the company's
stock.
Debt security correct answers usually acquired by buying a company's bonds
Debt investment correct answers a loan to a company in exchange for interest income and the
promise to repay the loan at a future maturity date (it does not confer ownership)
Balance Sheet Summarizes the Concept: correct answers Assets- what the company owns: cash
in the bank, accounts receivable (money it is owed), investments, property, inventory and so on
Liabilities- what the company owns: accounts payable (current bills it must pay), short and long-
term debt and other obligations
Equity- the excess of the value of assets over the value of liabilities (the company's net worth)
Net worth: is computed by subtracting all liabilities from the value of total assets: assets-
liabilities = net worth
Stock correct answers • A company issues stock as its primary means of raising business capital.
• Investors who buy the stock buy a share of ownership in the company's net worth.
• Each share of stock entitles its owners to a portion of the company's profits and dividends and
an equal vote on directors and other important matters.
• Most corporations are organized in such a way that their stockholders regularly vote for and
elect candidates to a board of directors to oversee the company' business
• An individual's stock ownership represents his proportionate interest in company
• Corporations may issue two types of stock: common and preferred.
Preferred Stock correct answers represents equity ownership in a corporation, but it usually does
not have the same voting rights or appreciation potential as common stock.
o Preferred stock normally pays a fixed, semiannual dividend and has priority claims over
common stock
• preferred stock, unlike bonds, has no present date at which it matures and no scheduled
redemption date
• *although preferred stock is an equity instrument, it fluctuates in price more like a debt
instrument. The fixed rate of dividend payment causes preferred stock to trade like bonds*
Common Stock can be classified as: correct answers Common stock can be classified as:
-Authorized
-Issued
-Outstanding
-Treasury
Authorized Stock correct answers refers to a specific number of shares the company has
authorization to issue or sell/ this is laid out in the company's original charter.
, -Should the company decide to sell more shares than are authorized the charter must be
amended through a stockholder vote.
Issued Stock correct answers o Issued stock: has been authorized and distributed to investors.
When a corporation issues or sells fewer shares than the total number authorized, it normally
reserves the unissued shares for future needs including:
Raising capital for expansion
Paying stock dividends
Providing stock purchase plans for employees or stock options for corporate officers
Exchanging common stock for outstanding convertible bonds or preferred stock
Satisfying the exercise of outstanding stock purchase warrants
Authorized but unissued stock correct answers does not carry the rights and privileges of issued
shares and is not considered in determining a company's total capitalization
Outstanding Stock correct answers includes any shares that a company has issued but has not
repurchased- stock that is investor owned
Treasury Stock correct answers Treasury stock: a stock corporation has issued and subsequently
repurchased from the public.
The corporation can hold this stock indefinitely or can reissue or retire it.
A corporation could reissue its treasury stock to fund employee bonus plans, distribute it to
stockholders as a stock dividend or under certain circumstances, redistribute to the public in an
additional offering- treasury stock does not carry the rights of outstanding common shares (such
as voting rights and the right to receive dividends)
By buying its own shares in the open market, the corporation reduces the number of shares
outstanding. If fewer shares are outstanding and operating income remain the same, earnings per
share increase.
Common Stock Value correct answers Common stock values: the laws of supply and demand -
based on the perception of a company's profitability and business prospects- determine the
company's stock price in the market.
Par Value correct answers Par value: for investors, a common stock's 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 stock markets price.
Book Value correct answers A stock's book value per share is a measure of how much a common
stockholder could expect to review for each share if the corporation were liquidated.
• Most commonly used by analysts, the book value per share is the difference between the value
of a corporation's tangible assets and its liabilities divided by the number of shares outstanding-
usually differs substantially form a stocks market value
Market Value correct answers Market price: the price investors must pay to buy the stock is the
most familiar measure of a stock's clue.
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