Series 7

Series 7 practice questions, page 6 of 16, with answer review and explanations.

Question 26

Bubba holds 200 shares of common stock in a utility company and receives rights to subscribe to an additional 100 shares at $20. The utility company is raising $40 million of new capital. How many rights does Bubba receive?

  1. 20
  2. 50
  3. 100
  4. 200

Question 27

Bubba holds 200 shares of common stock in a utility company and receives rights to subscribe to an additional 100 shares at $20. The utility company is raising $40 million of new capital. How many shares of common stock for the utility company were outstanding prior to the rights offering?

  1. 2,000,000
  2. 4,000,000
  3. 1,000,000
  4. 40,000,000

Question 28

Bubba owns a perpetual warrant to buy one share of Internet Corporation common stock at $30. Internet Corporation stock is trading at 41.50 and is ex-dividend today at $0.75. What is the market value of Bubbas warrant?

  1. 5.75
  2. 5.62
  3. 5.38
  4. cannot be determined from this information

Question 29

The preferred stock of Greatest Technology Corporation has a $100 par and is convertible into four shares of common stock. The preferred is trading at 104.50. The preferred is callable at 101. If the common stock price is presently 27.89, which of the following actions would be a successful arbitrage:

  1. purchase 400 shares of common stock and sell 100 shares of preferred stock as "short exempt" (that is, the sale is exempt from the uptick rule)
  2. purchase the preferred stock and sell an appropriate amount of the common stock "short exempt"
  3. purchase both the common and the preferred stocks as a hedge against further market risk
  4. purchase the preferred stock and let it be called, which is inevitable at these market prices

Question 30

Commercial paper is typically issued with a maturity date not exceeding:

  1. 90 days
  2. 6 months
  3. 270 days
  4. 1 year