Series 7 - General Securities Representative Exam Prep

Common stock represents ownership and voting rights, with variable dividends. Preferred stock typically has no voting rights, but offers fixed dividends and priority in liquidation over common stock.

A stock right allows existing shareholders to buy new shares below market price for a short period (typically 30-45 days) to maintain their proportionate ownership. A stock warrant is a long-term option (often years) to buy stock at a fixed price, usually issued with bonds or preferred stock to make them more attractive.

The Ex-Dividend Date is the first day a stock trades without the right to receive the declared dividend. To receive the dividend, an investor must purchase the stock before the ex-dividend date. It is typically two business days before the record date.

Municipal bonds are debt securities issued by state and local governments. Interest earned is generally exempt from federal income tax and often from state/local taxes for residents of the issuing state. They are used to finance public projects.

When a bond trades at a discount (below par), its YTM > Current Yield > Nominal Yield. When it trades at a premium (above par), its Nominal Yield > Current Yield > YTM. At par, all yields are equal.

The annual interest payment is 1,000 imes 0.06 = \60$.$Current\ Yield = \\frac{Annual\ Interest\ Payment}{Current\ Market\ Price} = \\frac{\60}{\960} = 0.0625 = 6.25\\%$

A call option gives the holder the right to buy the underlying asset at a specified strike price. A put option gives the holder the right to sell the underlying asset at a specified strike price. Both are for a limited time.

A call option is in-the-money if the market price of the underlying asset is above the strike price. A put option is in-the-money if the market price of the underlying asset is below the strike price.