Series 7 – General Securities Representative Exam Equity Securities & Stock Markets 2

Question 1

A company's earnings per share (EPS) is $4 and the stock trades at $60. What is the price-to-earnings (P/E) ratio?

Accepted Answer

15

Answer

P/E ratio = Price ÷ EPS = $60 ÷ $4 = 15.

Question 2

Which of the following best describes a rights offering?

Accepted Answer

An option to buy stock at a discount given to existing shareholders before a new public offering

Answer

A rights offering allows existing shareholders to purchase new shares at a discounted price before they are offered to the public.

Question 3

What is a tender offer in the context of equity securities?

Accepted Answer

A public offer to purchase shareholders' shares at a specified price, usually to acquire control

Answer

A tender offer is a public bid to buy a significant portion or all of a company's shares at a premium to gain controlling interest.

Question 4

Which SEC rule governs the resale of restricted and control securities?

Accepted Answer

Rule 144

Answer

SEC Rule 144 establishes the conditions under which restricted and control securities may be sold to the public.

Question 5

A 'blue chip' stock is best described as:

Accepted Answer

A stock of a well-established, financially stable, large-cap company

Answer

Blue chip stocks are shares of large, reputable, and financially sound companies with a long history of stable earnings.

Series 7 – General Securities Representative Exam Practice Test