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FINRA Series-7 Sample Question Answers

Question # 1

Bubba’s margin account has $1,000 of SMA. If he buys $20,000 of listed secu rities, how much fully paid margin stock must he deposit to respond to a Reg T requirement of 50%?

A. $20,000 
B. $9,000 
C. 10,000 
D. $18,000 

Question # 2

If a customer dies, the registered representative is required to:

A. cancel all open (good ‘til cancelled) orders 
B. await instructions and necessary papers from the executor of the estate 
C. sell out the account 
D. both A and B 

Question # 3

A tax-free rollover of assets between qualified retirement plans for the benefit of a specific individual is permitted so long as it is accomplished within:

A. 30 days 
B. 60 days 
C. 90 days 
D. one year 

Question # 4

Which of the following organizations usually has a prominent role in guiding investment policies of mutual funds?

A. the plan company 
B. the management group 
C. the custodian bank 
D. the underwriter 

Question # 5

Common stocks for which of the following industries are most likely to decline in valuewhen interest rates rise?

A. automobile manufacturers 
B. airlines 
C. stock brokers 
D. public utility companies 

Question # 6

Bubba buys a $4 convertible preferred with a $50 par value that is exchangeable for common stock at 47.50. If the preferred stock is trading at 52 and the common stock at 51,Bubba determines that the preferred stock is:

A. overpriced and will quickly decline 
B. selling at a 4% premium over conversion value 
C. underpriced and should rise quickly 
D. going to be called when the common stock price is $52 

Question # 7

In a monthly review of customer statements, Bubba notices that one of his firm’s clients has paid for seven purchases five days late. What does he do?

A. decides this situation is acceptable provided payment was received before any securities were sold 
B. ascertains whether the client had a sufficient bank balance on settlement date 
C. nothing because this is not a violation provided the securities were not listed on the NYSE 
D. ascertains that extensions had been obtained under Reg T 

Question # 8

Assuming all of the following bonds from the same issuer are callable now, which one would most likely get called first?

A. 8% maturing 1-15-2016 
B. 8% maturing 1-15-2007 
C. 4% maturing 1-15-2012 
D. 4% maturing 1-15-2007 

Question # 9

Under what conditions may an FINRA member firm sell an IPO to an employee of another broker/dealer?

A. if the amount of the purchase is small and the transaction accords with the employee’s normal investment practice 
B. if the member firm notifies the other broker/dealer of the transaction 
C. if the employing broker/dealer guarantees that resale of the securities acquired by its employee will be restricted for two years 
D. under no circumstances 

Question # 10

A group net order is one that benefits municipal syndicate members:

A. equally 
B. according to their percentage participation in the account 
C. according to the number of designated orders they’ve received 
D. according to the number of presale orders they’ve received 

Question # 11

The general purpose of the Securities Act of 1933 is to:

A. regulate the activities of investment advisers 
B. regulate the sale of securities on national exchanges 
C. provide for disclosure of information about new securities offerings 
D. provide for disclosure of the financial condition of underwriters 

Question # 12

A mutual fund with an 8% load and a 1% redemption fee carries a current quote of $6.25 - $6.79. If an investor has tendered his shares for redemption on that basis, the per shareprice he will receive is approximately:

A. $6.79 
B. $6.72 
C. $6.25 
D. $6.19 

Question # 13

How much currency is one mil worth?

A. one-tenth of one cent 
B. one-tenth of $1 
C. one-tenth of $100 
D. one-tenth of $1,000 

Question # 14

In the sale of open-end investment company shares, the amount at which the sales charge is reduced on quantity transactions is referred to as the:

A. margin 
B. breakpoint 
C. split 
D. spread 

Question # 15

At the time it underlying stock is trading at 48, Bubba buys a listed call option with a $50 strike price for $300. At what minimum price must that stock trade for Bubba to recover hisinvestment (ignoring commission and taxes)?

A. $45 
B. $48 
C. $51 
D. $53 

Question # 16

Bubba Corporation has 3,500,000 shares of common stock outstanding and its trading volume in the few weeks has been as follows: Week 1 - 43,000 Week 2 - 30,900 Week 3 - 37,500Week 4 - 42,600 Week 5 - 33,000 (the most recent week)If an affiliated person wanted to liquidate some of his holding of 100,000 shares pursuant to SEC Rule 144, how many shares could he sell?

A. 35,000 
B. 36,000 
C. 37,400 
D. 38,500 

Question # 17

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?

A. 20 
B. 50 
C. 100 
D. 200 

Question # 18

Call loans made by banks to broker/dealers are generally for the purpose of which of the following?

A. expansion of office facilities 
B. meeting operating expenses 
C. carrying margin accounts 
D. financing securities held in inventory 

Question # 19

A stock with a current P/E of 17 is selling at $74.50 per share. What are the company’s earnings in the trailing 12 months?

A. about $4.28 
B. $6.20 
C. $1.70 
D. impossible to calculate from this information 

Question # 20

To accommodate a customer’s order to buy an over-the-counter stock, a broker/dealer is permitted to:

A. sell him shares from the firm’s inventory 
B. sell these shares short to the customer 
C. act as agent on this transaction 
D. all of the above 

Question # 21

The expiration date of a listed option is:

A. the last day of the expiration month 
B. the third Saturday of the expiration month 
C. the Saturday following the third Friday of the expiration month 
D. the third Friday of the expiration month 

Question # 22

Which of the following securities is traded only in the over-the-counter market?

A. corporate bonds 
B. preferred stocks 
C. open-end investment companies 
D. closed-end investment companies 

Question # 23

For a self-employed individual’s retirement plan, ERISA permits an investment in which of the following?

A. a unit investment trust 
B. a variable annuity 
C. a US Treasury bond 
D. all of the above 

Question # 24

An offering price of 102 plus accrued interest applies to which of the following securities?

A. treasury bills 
B. certificates of deposit 
C. commercial paper 
D. banker’s acceptances 

Question # 25

In a firm commitment offering, any shares that are not sold are:

A. returned to the issuing corporation 
B. listed in the over-the-counter market 
C. transferred to treasury stock 
D. owned by the members of the syndicate 

Question # 26

In which of the following situations may exemption from compliance with Regulation T be granted?

A. a broker/dealer who does not offer margin accounts 
B. a broker/dealer conducts business only in registered securities 
C. a broker/dealer transacting less than 10% of its business through a member of a securities exchange 
D. none of the above 

Question # 27

What type of mutual fund would invest in equities and bonds?

A. dual purpose 
B. balanced 
C. technology 
D. growth 

Question # 28

Bubba owns stock with cumulative voting rights. There are five vacancies on a board and he owns 100 shares of stock. Bubba is entitled to cast the following votes:

A. a total of 100 votes 
B. a total of 100 votes per 
C. a total of 500 votes 
D. you are not allowed to vote 

Question # 29

Which of the following statements about mutual fund fees is accurate?

A. the management group receives a fee based upon the amount of assets in the fund 
B. the sponsor receives a management fee for buying and selling the fund’s portfolio securities 
C. the management group receives part of the sales charge in addition to a management fee 
D. the custodian receives part of the management fee in addition to a fee for safekeeping of the fund’s securities 

Question # 30

Regulation A permits a short form of filing for offerings of new securities provided the total amount of the offering does not exceed:

A. $1,000,000 
B. $5,000,000 
C. $2,000,000 
D. $2,500,000 

Question # 31

The public offering price of the securities of an open-end management investment company is:

A. determined by a method set forth in the prospectus of the issuer 
B. based upon net asset value of the securities underlying the shares of the issuer plus a 10 % sales charge 
C. determined by the relative demand for the shares of the issuer 
D. the price used by distributors in determining sales incentive discounts to individual purchasers 

Question # 32

Bubba buys 100 shares of XYZ stock at $40 per share and sells a listed July XYZ call at 45 for a $2 premium. What is his loss potential?

A. $3,800 
B. $4,000 
C. $4,200 
D. $4,500 

Question # 33

A short sale can be made in which of the following types of accounts?

A. special cash account 
B. a custodian account 
C. margin account 
D. special memorandum account 

Question # 34

Which of the following is not usually an additional function of a mutual fund’s custodial bank?

A. transfer agent 
B. investment advisor 
C. registrar 
D. dividend disbursing agent 

Question # 35

Which of the following is not a marketable security?

A. tax anticipation bonds 
B. municipal bonds 
C. treasury bonds 
D. Series EE bonds 

Question # 36

A trust instrument drawn pursuant to the Trust Indenture Act of 1939 sets forth which of the following?

A. the rights of stockholders 
B. the duties of the trustee 
C. the obligations of the issuing corporation 
D. both B and C 

Question # 37

Which of the following is least relevant in evaluating the safety of a general obligation bond?

A. per capital debt 
B. total GO debt as a percentage of market value of property 
C. total GO debt as a percentage of assessed value of property 
D. total debt service as a percentage of net operating revenue 

Question # 38

Which of the following have a stated interest rate on the face of the certificates?

A. treasury bills 
B. treasury notes 
C. treasury bonds 
D. both B and C 

Question # 39

Bubba’s margin account has securities valued at $20,000 and an $8,000 credit balance. What is the equity in Bubba’s account?

A. $8,080 
B. $12,800 
C. $20,000 
D. $28,000 

Question # 40

Bubba has a cash account and fails to make full and prompt payment for a purchase. The broker liquidated the transaction. Two weeks later, Bubba places another buy order for 100shares of XYZ. What does the broker do?

A. refuses the order 
B. handles the order after obtaining a promise from Bubba to effect prompt settlement 
C. requires a 25% down payment before executing the order 
D. executes the order at its own risk 

Question # 41

Which of the following is true about a customer with a frozen account?

A. may not trade corporate securities under any circumstances 
B. may make purchases but not sales of corporate securities 
C. must deposit the full purchase cost before an order is executed 
D. must deposit sufficient cash for each transaction no later than the settlement date 

Question # 42

The initial Federal Reserve Bank margin requirement is set at 60% and Bubba purchases 100 shares of XYZ at $100 per share. He deposits $6,000 of the $10,000 purchase price inhis account. If XYZ increases in value to $150 per share, how much excess equity would Bubba have in his account?

A. $1,000 
B. $1,500 
C. $2,000 
D. $3,000 

Question # 43

Bubba entered an order to sell long 100 shares of XYZ at 38.75 stop limit. Thereafter, the following round-lot transactions occurred: 38.75, 38.65, 38.50. At what price was Bubba’s order executed?

A. 38.75 
B. 38.65 
C. 38.50 
D. it was never executed 

Question # 44

Bubba Corporation has net income of $4,200,000. It has 100,000 outstanding shares of 8% preferred stock ($100 par value) and 400,000 shares of common stock ($10 par value). What are the earnings per share of common stock?

A. $8.50 
B. $6.00 
C. $4.20 
D. $10.50 

Question # 45

What is the importance of the “at risk” rule?

A. it limits deductions to the amount at risk 
B. it limits liability to the amount at risk 
C. deductions for interest may not exceed investment income 
D. it prevents carry forward of disallowed interest deductions 

Question # 46

A syndicate manager has just been informed that its bid has been accepted and all syndicate members are duly notified. Public information on the award will be most quickly available from:

A. the Blue List 
B. the daily Bond Buyer 
C. the Wall Street Journal 
D. Munifacts 

Question # 47

Under what circumstances may a registered investment company change its investment objective?

A. after SEC approval 
B. after it obtains a new charter from the state secretary 
C. after approval by a majority vote of the shareholders 
D. after providing notice that is recorded in the Federal Register 

Question # 48

Bubba is a registered representative who wishes to buy shares of a new issue his firm is distributing. Under FINRA Conduct Rules, Bubba may:

A. not do so under any circumstance 
B. do so if he has a history of buying hot issues 
C. not do so for his own account, buy may purchase shares for his sister’s account 
D. do so if his allotment is insubstantial and not disproportionate to public orders 

Question # 49

Bubba and his wife, Bubbette, maintain a joint account with a brokerage firm as “joint tenants in common”. Bubbette calls a registered representative at the brokerage and places an order to sell 100 shares of XYZ, which is long in the account. Which of the following statements is correct about this order?

A. it may be entered 
B. it may be entered only after confirming with Bubba 
C. it must be approved by an officer of the brokerage prior to entry 
D. the order may not be accepted 

Question # 50

Which of the following preferred issues is likely to fluctuate most in value?

A. cumulative preferred 
B. callable preferred 
C. convertible preferred 
D. broker preferred 

Question # 51

Which of the following is true about option prices?

A. premiums on options for listed stocks are usually greater than on unlisted stocks 
B. premiums on options of higher-priced stocks are usually greater than on lower-priced stocks 
C. premiums on options of well-known companies are usually larger than on lesser-known companies 
D. premiums on options of volatile stocks are usually larger than on less volatile stocks 

Question # 52

An investment company incapable of issuing a long-term debt instrument is:

A. a face-amount certificate company 
B. a unit investment trust 
C. a closed-end investment company 
D. an open-end investment company 

Question # 53

Crossover is best defined as:

A. the point at which the program becomes profitable 
B. the point at which income exceeds deductions 
C. the fact that there are more general partners than limited partners 
D. the profit of limited partners exceeding profit of general partners 

Question # 54

The principal underwriter of an open-end investment company is frequently called:

A. participating investment advisor 
B. sponsor
C. selling group member 
D. investment counselor 

Question # 55

On which of the following is depreciation permitted?

A. rental property whose value is declining 
B. residential property not used for business 
C. property whose maintenance exceeds the investment credit 
D. equipment subject to recapture 

Question # 56

Bubba want to buy a CMO. In general, how often should he expect to receive interest payments?

A. every week 
B. every month 
C. every year 
D. at maturity 

Question # 57

A provision under which an underwriter can cancel a proposed public offering due to some unforeseen occurrence is known as a:

A. blue sky provision 
B. contra-market clause 
C. fill or kill provision 
D. market-out clause 

Question # 58

Bubba wants to buy a $4 convertible preferred with that has a $50 par value and is exchangeable for common stock at $47.50. If the preferred stock is trading at 52, whatdoes Bubba calculate as the common stock price in order to be at parity with the preferred?

A. 47.50 
B. 52.00 
C. a little less than 49.38 
D. a little more than 54.50 

Question # 59

For what time period does a Form 144 remain in effect?

A. 30 days 
B. 60 days 
C. 90 days 
D. one year 

Question # 60

A new stock offering by Bubba Corporation provides details that state between 1,000,000 and 1,500,000 shares will be sold depending upon market conditions. This offering is a:

A. best efforts 
B. standby 
C. mini-max 
D. market potential 

Question # 61

Big Guns Municipal Bond Dealer Corporation buys 100M of 7% 20-year GO bonds at par. The bonds are marked up and immediately re-offered for sale. Which of the following re-offering prices would probably be deemed excessive?

A. 6.8% net 
B. 6.9% less 0.5 
C. $100.75 
D. 5.00% net 

Question # 62

In the offering of new securities, members of the syndicate are permitted to sell to other dealers less the reallowance. The amount of the reallowance is determined by:

A. the FINRA
B. the issuing corporation 
C. the syndicate manager 
D. the SEC 

Question # 63

Bubba buys one XYZ September 50 call at $7 and sells one XYZ September 60 call at $3. At that time, XYZ stock is at $55. Bubba has no other stock positions. What is Bubba’s maximum possible profit?

A. $500 
B. $600 
C. $1,000 
D. unlimited 

Question # 64

Bubba has a short margin account with a short market value of $22,000, a credit balance of $42,000, and SMA of $500. What is the NYSE minimum equity maintenance for this account?

A. $5,500 
B. $6,000 
C. $6,600 
D. $12,600

Question # 65

Bubba Corporation has a profit sharing plan. The company president, Bubba, is receiving the maximum plan contribution amount. The corporation has one other employee, who iseligible for the plan. If this person earns $12,000 per year, how much must be deposited in the plan for the employee?

A. $6,000 
B. $3,000 
C. $1,800 
D. $12,000 

Question # 66

A front-end loan mutual fund plan is most suitable for:

A. a voluntary accumulation plan 
B. a contractual plan 
C. an automatic withdrawal plan 
D. an optional withdrawal plan 

Question # 67

Bubba maintains an individual cash account as well as a joint account with his wife, Bubbette. While Bubba is out of town on a fishing trip, Bubbette calls the brokerage firm with an order to buy 100 shares of Great Company, Inc., at the market value for Bubba individual account. It is a stock Bubba has previously informed the brokerage he wanted to buy at the “right price”. What does the brokerage do?

A. refuse to accept the order unless Bubba has provided a signed trading authorization in favor of Bubbette 
B. execute the order as requested 
C. enter the order only after receipt of written instructions to do so from Bubba 
D. buy the stock in the joint account and, after verification from Bubba, journal the security to his individual account 

Question # 68

Bubba Corporation has a registered public offering of 750,000 shares at $40. An underwriter of 30,000 shares is advised by the manager that its retention will be 70%. How many shares may the underwriter sell to its own customers?

A. 30,000 
B. 21,000 
C. 9.000 
D. as many as it can up to a maximum of 51,000 

Question # 69

A mutual fund letter of intent may permissibly be predated for a period of time up to:

A. 5 business days 
B. 10 business days 
C. 90 calendar days 
D. 13 months 

Question # 70

In a triple net lease, which of the following is the tenant not responsible for paying?

A. taxes 
B. financing charges 
C. insurance premiums 
D. maintenance 

Question # 71

Under Rule 415 a corporation may file a single registration statement with the SEC covering its anticipated financing need for the next:

A. one year 
B. two years 
C. three years 
D. five years 

Question # 72

A treasury obligation having no fixed rate of interest with a thirty-day maturity due April 22 is most likely a:

A. treasury note 
B. tax anticipation bill 
C. Series H bond 
D. Series EE bond 

Question # 73

Which of the following sets of prices is that of a closed-end investment company?

A. $7.50 $8.10 
B. $10.10 $11.00 
C. $28.14 $27.75 
D. $20.15 $21.85 

Question # 74

Distribution from an IRA can begin at age 59½ and must begin by age: 

A. 70½ 
B. 65 
C. 68 
D. whenever the individual is retired 

Question # 75

Which of the following does not issue debt securities that trade in the open market?

A. Fannie Mae 
B. Freddie Mac 
C. Federal Reserve Banks 
D. Federal Land Banks 

Question # 76

Registration of open-end investment company shares with the SEC implies that the:

A. shares have investment merit 
B. SEC approves the issue 
C. SEC guarantees the accuracy of the disclosures in the registration statement 
D. prospectus contains the significant facts about the issue 

Question # 77

Which of the following is a right for shareholders of common stock?

A. the right to have the stock price increase 
B. the right to vote about important matters of the company 
C. the right to dividends 
D. both B and C 

Question # 78

A withdrawal from a Roth IRA may be a qualified distribution if the Roth IRA has been open for at least:

A. 90 days 
B. one year 
C. 2 years 
D. 5 years 

Question # 79

In terms of depletion, percentage depletion is better than cost depletion because it:

A. permits recovery of more than the original cost 
B. is limited to production 
C. is more widely available 
D. is not subject to recapture 

Question # 80

The practice of positioning stock in response to a customer’s order and immediately after marking it up for resale to the customer is:

A. a factor to consider in the FINRA guideline 
B. a simultaneous transaction 
C. a riskless transaction 
D. all of the above