Series 82: Chapter One

Chapter One

Seeks Business for the Broker-Dealer from Customers and Potential Customers

25 out of 50 Questions on the Exam

When a company would like to raise money by issuing a security, it has two general options.

First, the company can sell partial ownership in the business to others. The company does this by issuing tiny equal portions of ownership called “shares” or “stock” (the terms are used interchangeably and mean the same thing). Investors buy these shares and become partial owners of the company. The more shares an investor purchases, the larger the portion of the company she owns. In an accounting context, equity means what is left over after all debts have been paid, so equity financing can be seen as selling a stake in “what’s left over”: ownership in the business. What is being purchased by investors—tiny equal portions of ownership called shares or stock—are called equity securities.

The second main method for a company to raise money is by issuing bonds. Bonds are promises by the company (the issuer) to pay the bond purchaser a specific amount of money in the future and also to pay periodic interest along the way. Conceptu