Series 7 – General Securities Representative Exam Equity Securities & Stock Markets 1 — Questions and Answers
Question 1: A company declares a 2-for-1 stock split. If a shareholder owns 100 shares at $80 each, what will they hold after the split?
- 200 shares at $40 each (Correct answer)
- 50 shares at $160 each
- 100 shares at $40 each
- 200 shares at $80 each
Correct answer: 200 shares at $40 each
In a 2-for-1 split, share count doubles and price halves, so 100 shares at $80 becomes 200 shares at $40.
Question 2: Which type of order instructs a broker to buy or sell a stock immediately at the best available current price?
- Limit order
- Stop order
- Market order (Correct answer)
- Stop-limit order
Correct answer: Market order
A market order executes immediately at the best available price without a specified price constraint.
Question 3: What is the primary difference between common stock and preferred stock?
- Common stockholders have fixed dividends; preferred do not
- Preferred stockholders have priority over dividends and assets in liquidation (Correct answer)
- Common stock cannot be traded on exchanges
- Preferred stockholders always have voting rights
Correct answer: Preferred stockholders have priority over dividends and assets in liquidation
Preferred stockholders receive dividends before common stockholders and have priority claims on assets in liquidation.
Question 4: An investor sells short 200 shares of XYZ at $50. If the price rises to $65, what is the investor's loss?
- $2,000
- $3,000 (Correct answer)
- $13,000
- $10,000
Correct answer: $3,000
The loss is ($65 - $50) × 200 = $15 × 200 = $3,000.
Question 5: Which market is known as the secondary market for over-the-counter (OTC) equity securities in the U.S.?
- NYSE
- NASDAQ (Correct answer)
- CBOE
- CME
Correct answer: NASDAQ
NASDAQ is the primary electronic OTC marketplace for U.S. equities, operating as a dealer-based market.
Question 6: What does the ex-dividend date determine?
- The date the dividend is paid to shareholders
- The last day a shareholder can sell shares and still receive the dividend
- The first day a buyer of shares will NOT receive the upcoming dividend (Correct answer)
- The date the board declares the dividend
Correct answer: The first day a buyer of shares will NOT receive the upcoming dividend
The ex-dividend date is the first day a buyer does not qualify for the upcoming dividend; buyers must own shares before this date.
Series 7 – General Securities Representative Exam Equity Securities & Stock Markets 1
A company declares a 2-for-1 stock split.
If a shareholder owns 100 shares at $80 each, what will they hold after the split?