Series 7 Practice Qs 2

A state agency revenue bond does not have sufficient revenue to meet debt service. A provision of the indenture allows the agency to request funds from the state legislature. The legislature has the option of providing or not providing the additional funds. This is a:

General obligation bond

Double-barreled bond

Special tax bond

Moral obligation bond

D

A customer owns a JRF October 50 listed call option. JRF has declared a $1.00 cash dividend. When JRF sells ex-dividend, which of the following choices will reflect the price and the number of shares of the JRF October 50 option?

$49 strike price, 100 shares

$50 strike price, 95 shares

$50 strike price, 100 shares

$50 strike price, 105 shares

C

A customer is moderately aggressive and has a long-term investment horizon. If the customer is also looking for tax-advantaged savings, in what should she invest?

Variable annuity

Hedge fund

Mutual fund

Treasury securities

A

Private label CMOs may be categorized into any of the following tranches, EXCEPT:

Senior

Mezzanine

Intermediate

Junior

C

Which of the following securities will provide an investor with protection against purchasing-power risk?

Treasury bills

Treasury notes

TIPS

STRIPS

C

An investor writes an XYZ October 70 call at 3 and an XYZ October 70 put at 1. This strategy is referred to as a:

Short combination

Short straddle

Bull spread

Bear spread

B

A broker-dealer is NOT acting as a principal in which of the following scenarios?

Selling bonds from inventory to an individual

Selling bonds from inventory to another broker-dealer

Buying bonds from another broker-dealer for inventory

Buying 500 bonds to fill an insurance company's order for 500 bonds

D

Which of the following factors is the LEAST useful when analyzing the credit risk of an issuer of revenue bonds?

An engineering study

The ratio of the amount of net overall debt to assessed valuation

The debt service coverage ratio

The feasibility study

B

The PSA Model is used when pricing:

Put options

Preferred stock

Collateralized mortgage obligations

Treasury notes

C

A customer buys bonds with a $50,000 par value at 85 1/2. The bonds are callable at 110. If the customer holds the bonds to maturity, he will receive:

$42,500 plus the last interest payment

$50,000 plus the last interest payment

$55,000 plus the last interest payment

$85,000 plus the last interest payment

B

An individual has been purchasing shares of a mutual fund and has chosen to reinvest all distributions rather than take the payments. If the individual chooses to sell the shares purchased through these reinvestments, the cost basis will be:

The purchase price of these shares

Zero since reinvestment is made with pretax dollars

The same as the purchase price on previous investments

The purchase price less any sales charge

A

Which of the following choices is another way of expressing the earnings multiple?

Debt-to-equity ratio

Dividend payout ratio

Price-earnings ratio

Operating profit ratio

C

A municipality borrowing for a short-term period to finance a capital project would issue:

Commercial paper

Tax anticipation notes

Debentures

Bond anticipation notes

D

Which of the following is a requirement for a company's securities to be listed and trade on the OTCQX?

The issuer must be domiciled in the United States.

The issuer must have audited financial statements.

The issuer must be listed on another exchange.

The issuer must have a bid price of less than $5.00 per share.

B

Which of the following bonds would increase most in price if interest rates decline?

Short-term bonds selling at a discount

Long-term bonds selling at a discount

Short-term bonds selling at a premium

Long-term bonds selling at a premium

B

The credit rating agencies have downgraded an issuer of an exchange-traded note. Which of the following statements is TRUE?

It will have a negative impact on the security

It will have a positive impact on the security

It will have no impact on the security

The issuer will be obligated to repay the investor his principal immediately

A

A broker-dealer has established a page on a social media site which allows customers to post comments. The firm’s responses to these comments are considered:

Correspondence

A violation of FINRA rules

Neither correspondence nor retail communications

Retail communications

D

The ABC Growth Fund has been in existence for eight years. If the fund uses an advertisement that refers to its ranking based on total return, what total return time periods must be used?

One-year, five-year, and lifetime of the fund by the same ranking entity

At least one year

One-year and five-year periods by all ranking entities

Since the fund has not been in existence for at least 10 years, it cannot use ranking based on total return in its advertising

A

The Bond Buyer Index is based on which of the following securities?

Treasury bonds

Municipal bonds

Corporate bonds

Mortgage bonds

B

When the market price of ABC stock is $49 per share, a customer buys 10 ABC January 50 calls paying a premium of $3 and 10 ABC January 50 puts also paying a premium of $3. The buyer's TWO breakeven points are:

$44 and $53

$44 and $56

$47 and $53

$47 and $56

B

In a direct participation program, which party is the last to be paid in a liquidation?

Secured creditor

General creditor

General partner

Limited partner

C

Securities purchased under a Rule 147 exemption may be sold to an out-of-state resident:

Immediately

After 30 days

After three months

After six months

D

A registered representative discovers that one of her customers is on the Office of Foreign Assets Control (OFAC) list. The RR or another person at her firm must notify:

The Office of the Comptroller of the Currency

The Treasury Department

The SEC

FINRA

B

A registered representative wants to sell to a client Class B shares that have a seven-year contingent deferred sales charge (CDSC). Which of the following representations is appropriate?

"These shares will outperform Class A shares because you don't need to pay a sales charge."

"These shares are just like a no-load as long as you hold them for at least seven years."

"All of your money goes to work since there's no up-front sales charge."

"These are the best types of shares to buy."

C

Which of the following statements is TRUE concerning the tax treatment of municipal bonds?

If the bond was purchased at a premium, it will be accreted based on the constant yield method

If the bond was purchased as an original issue discount (OID), the discount will be accreted based on a constant yield method

The premium will not be amortized if the bond was purchased at a premium

The discount will be amortized if the bond was purchased as an original issue discount (OID)

B

A high net worth individual with a significant margin portfolio employs numerous hedging strategies to hedge the risk on his investments. He will find it most beneficial to use:

Strategy-based margin

Portfolio-based margin

Day trading margin

Combined margin

B

A customer wants to purchase an investment that will allow him to profit from his belief that interest rates will decline over the next 15 years. The recommendation of which of the following securities is NOT consistent with the customer's belief?

A five-year non-callable bond

A 15-year callable bond with a put provision after five-years

A floating rate note

A 30-year general obligation bond

C

Which of the following statements is NOT TRUE regarding the purchaser of a put option?

The purchaser has a right to sell stock

The purchaser limits the amount of money he could lose if the value of the underlying stock increases

The purchaser benefits if the value of the underlying stock declines

The only way to realize a profit is to exercise the option

D

A municipal bond trader does NOT:

Request bids

Accept bids

Commit to underwritings

Negotiate settlement dates in the secondary market

C

A registered representative enters an order for a client. In error, the registered representative (RR) purchases shares of the wrong security. Which of the following statements is TRUE?

The shares must be placed in the RR's error account.

The shares must be placed in the broker-dealer's error account.

The RR must contact the client and cancel the original transaction.

The firm is required to report the error to the market in which the order was executed.

B

Which of the following positions is considered a covered option?

Long the stock, short a put

Long the stock, long a call

Short the stock, short a put

Short the stock, long a put

C

Which of the following choices represent a profitable strategy for a technical analyst?

Buying calls on stocks with high P/E ratios

Buying calls when a stock breaks through a resistance level and buying puts when a stock breaks through a support level

Buying calls when a stock breaks through a support level and buying puts when a stock breaks through a resistance level

Buying puts on stocks with high earnings per share (EPS)

B

A closed-end fund's shares are listed in The Wall Street Journal with a Net Asset Value of 21.85 and a Market Price of 21.50. If a customer purchases the shares at the current market price, he will pay:

$21.50 plus a sales charge

$21.50 plus a commission

$21.85 plus a sales charge

$21.85 plus a commission

A

A corporation is NOT considered to be in default if it fails to pay interest on which of the following bonds?

Mortgage bond

Debenture

Convertible bond

Income bond

D

A new issue of municipal bonds has an aggregate par value of $10,000,000. The syndicate received $5,000,000 in designated orders, $5,000,000 in group orders, and $5,000,000 in member orders. How will the issue be allocated?

$5 million group and $5 million designated

$5 million group and $5 million member

$5 million designated, $2 1/2 million group, and $2 1/2 million member

$3 1/3 million designated, $3 1/3 million group, and $3 1/3 million member

A

A facility is created by the issuance of industrial development revenue bonds. The bonds are backed by:

The local municipal district in which the facility is domiciled

The state in which the facility is domiciled

The corporation that leases the facility

Both the corporation that leases the facility and the municipality

C

A Regulation A exemption is allowed for an issuer that's offering:

500,000 shares or less

Securities with a value not exceeding $10 million

Securities with a value not exceeding $75 million

Securities being sold to only residents of one specific state

C

A website is being designed for a registered representative of a member firm. Which of the following statements is TRUE regarding the design of this website?

The FINRA logo must be displayed.

The registered representative's firm name must not be displayed.

The registered representative may reference his FINRA membership.

Links to other websites are not permitted.

C

Which of the following customers is the MOST suitable for a municipal zero-coupon bond?

An investor who is seeking the tax benefits of long-term capital gains.

An investor who is not seeking immediate additional cash flow.

An investor who is seeking cash flow for his ongoing living expenses.

A custodian account in which the parent of the minor child is in the lowest tax bracket.

B

Which of the following statements is TRUE about real estate investment trusts (REITs)?

They may invest only in short-term construction loans.

They must distribute 90% of their earnings to shareholders.

They must invest in mortgages and equity securities.

They must invest 90% of their portfolio in commercial real estate properties.

B

An investor has made the following purchases of XAM stock:

• Shares bought at $39 in May 2022

• Shares bought at $56 in September 2022

• Shares bought at $36 in January 2023

• Shares bought at $36 in June 2023

The investor sells some of his XAM shares in February 2024 at $51. Based on the various purchases, which shares may be sold to result in the greatest gain with the lowest tax liability?

Sell from the shares that were purchased in May 2022

Sell from the shares that were purchased in September 2022

Sell from the shares that were purchased in January 2023

Sell from the shares that were purchased in June 2023

C

Which of the following statements is NOT TRUE concerning the Student Loan Marketing Association (Sallie Mae)?

It issues securities that can be redeemed to pay for college education

It issues securities that are not backed by the U.S. government

It purchases federally sponsored student loans

It provides loans to educational institutions

A

How would preferred stock most likely be affected by an increase in interest rates?

Its market value would increase

Its market value would decrease

Its dividend would decrease

There would be no effect

B

A registered person is concerned that his boss is making inappropriate advances. This allegation must be settled by:

Arbitration

Litigation

Mediation

Any method of the registered person's choosing, including remediation through the court system

D

A brokerage firm erroneously confirms to a customer a purchase of 100 shares of XYZ Corporation at 28.25. The firm later finds that the purchase was actually made at 28.75. The customer:

Must pay 28.25

Must pay 28.75

Can accept the 28.75 or cancel the order

Can cancel the order

B

A municipal bond with 10 years to maturity was purchased at 105. If an investor sold the bond six years later at 103, which of the following is TRUE regarding the tax result?

The investor has a $20 long-term capital loss.

The investor has no gain or loss.

The investor has a $10 gain that’s taxed at the investor’s ordinary income rate.

The investor has a $10 long-term capital gain.

D

All of the following information must be disclosed to a customer on a confirmation, EXCEPT:

The security traded, the price, and the number of shares

Whether the firm acted as principal or agent

The commission if the firm acted as an agent

Whether the order was solicited or unsolicited

D

How can an individual move the securities from a retirement account to a regular brokerage account at the same broker-dealer?

Non-ACATS transfer

1035 exchange

ERISA approval

Rollover

D

A firm's suitability responsibilities for sales of variable annuities do NOT apply to recommendations in which of the following situations?

The initial purchase of a variable annuity

The reallocation of assets among subaccounts after the initial purchase

The exchange of one variable annuity for another

The initial subaccount allocations

B

Under Regulation BI, which of the following forms is required for a broker-dealer to disclose the relationship it maintains with its clients?

Form U4

Form CRS

Form 3

S-1

B

Which of the following statements is TRUE concerning reverse convertible securities?

An investor will receive a coupon rate below prevailing market rates.

An investor is anticipating a decrease in the value of the underlying asset.

They are suitable for an investor who wants to own shares of the underlying asset.

The investor is anticipating that the price of the underlying asset would be above the knock-in value.

D

Ms. Green buys 300 shares of RSW at $15 per share. She then writes 3 RSW July 20 calls at 1 and writes 3 RSW July 10 puts at 50 cents. Ms. Green's maximum potential loss on the entire position is:

Unlimited

$7,050

$4,950

$4,050

B

A notice is published stating that RMO 5% convertible preferred stock will be called at $60 per share. The preferred is convertible into 1/2 share of common and is selling in the market at $56 per share. RMO common stock is selling in the market at $110 per share. After the notice appears, the price of the preferred stock will most likely trade in the market at:

$28

$55

The same price as before the notice appeared

A price near $60

D

An investor has a large portfolio which includes cash, equities, and bonds. The investor is now seeking an alternative investment and is willing to tie up his funds for a long period. Which of the following investments should the investor's RR recommend?

An asset allocation mutual fund

An interval fund

A mutual fund which is concentrated in convertible securities

A closed-end fund that's listed on the NYSE and invests in undervalued small-cap companies

B