Series 7 exam 2
A customer sells 1 ABC Jan 40 Put @ $5, and deposits cash equal to the aggregate exercise price. If ABC declines to $30, the customer must deposit:
A $0
An open end fund has a Net Asset Value of $10 per share. The minimum price at which a share can be purchased is:
A $10
On the same day, a customer: Sells 1 ABC Jan 50 Call@ $3 Sells 1 ABC Jan 50 Put@ $5 At that time, the market price of ABC is $48. The maximum potential gain is:
A $800
A customer has $10,000 in passive losses from a limited partnership investment. If the customer has no other passive income for that tax year, the customer may deduct:
A 0
A customer is short 400 shares of ABC stock at $50 per share in a margin account. The customer wishes to sell 4 ABC Jan 50 Puts @ $5. The customer must deposit:
A 0
Under the "penny stock rule," an established customer that is exempt from the rule is defined as a person who has effected a securities transaction or made a deposit of funds or securities with that broker-dealer more than:
A 1 year previously
Which of the following money market instruments is rated on a "P" scale?
A Commercial Paper
Which of the following persons trades securities for his own account? I Specialist (DMM) II Market Maker III Order Book Official IV Floor Broker
A I and II
ABC Corp. has a convertible preferred issue with an "anti-dilutive" covenant. ABC declares a stock dividend. After the stock dividend is paid, which statements are TRUE? I The conversion price is decreased II The conversion price is unaffected III The conversion ratio is increased IV The conversion ratio is unaffected
A I and III
Payment of interest and principal on Ginnie Mae pass through certificates is: I backed by the faith and credit of GNMA II not backed by the faith and credit of GNMA III backed by the faith and credit of the U.S. Government IV not backed by the faith and credit of the U.S. Government
A I and III
When a corporation splits its stock, which of the following statements are TRUE? I The market price per share will be reduced II The market price per share will be increased III Individual investors are more likely to buy the stock IV Individual investors are less likely to buy the stock
A I and III
Which statements are TRUE regarding Real Estate Investment Trusts? I REITs must distribute at least 90% of Net Investment Income to shareholders II REITs must invest at least 90% of assets in other REIT securities III Interest expense paid by REITs is deductible to the REIT IV REITs are registered as investment companies under the Investment Company Act of 1940
A I and III
Prior to the filing of a registration statement, which of the following activities is (are) permitted? I A member firm signing a syndicate agreement to become part of the underwriting group for the issue II A member firm distributing preliminary prospectuses for the issue to customers III A member firm taking indications of interest for the issue from customers IV A member firm selling the issue to customers
A I only
Which statement is TRUE about selling short against the box?
A It "locks-in" a gain on the stock
A customer viewing virtual trading floor information on the NYSE Website notices that he can see most, but not all, of the stocks included in the Dow Jones Industrial Average, trading on the floor. The customer asks his registered representative why this is the case. The customer should be told that:
A Of the 30 stocks included in a Dow Jones Industrial Average, a handful do not trade on the NYSE
When the market price of XYZ stock is $44 per share, which of the following choices would create a "strangle"?
A Short 1 XYZ Jan 40 Put; Short 1 XYZ Jan 50 Call
Foreign currency options are quoted in terms of:
A U.S. dollars
Many years ago, a customer opened a Coverdell ESA for his son, who is now age 16, and a savings account for his daughter, who is now age 18. The 18-year old daughter is entering college and does not have enough money in the savings account to pay for tuition. To pay the tuition bill, the customer:
A can change the beneficiary on the Coverdell ESA from the son to the daughter
If a bear market is expected, all of the following strategies are appropriate EXCEPT: covered call writing long put spreading long put buying naked short call writing
A covered call writing
Upon annuitization, a customer's insurer calculated the assumed interest rate (AIR) of his annuity as 5 percent. The account earned 6 percent after the first year. The customer's next payout amount will:
A increase
A 60-year old customer has a 401(k) account with your firm that has $280,000, mainly invested in growth mutual funds. The customer has an elderly widowed aunt who has died, and her estate attorney has contacted him, notifying him that he has been left $100,000 as an inheritance. The customer is single and has an annual income of $100,000 per year. He wants to use the inheritance to buy a retirement home, which he expects to do in 7 years. Over this investment time horizon, the general expectation is that interest rates will rise. The best recommendation to the customer is to invest the $100,000 in:
A money market instruments
A customer who purchases a "call spread" believes that the market will:
A rise
The "cross-over" point in a limited partnership program is defined as the point where:
A taxable income exceeds tax deductions
Which of the following is subject to the registration requirements of the Securities Act of 1933?
American Depositary Receipts
A customer buys 200 shares of ABC stock at $50 per share and buys 2 ABC Jul 50 Puts @ $4. The puts expire and the customer sells the stock in the market at $60. The customer has a capital gain of:
B $1,200
A customer owns 100 shares of ABC stock in a margin account, valued at $40 per share. The customer sells 3 ABC Jul 40 Calls @ $4. The stock moves to $60 and the calls are exercised. The customer has a:
B $2,800 loss
A customer sells short 100 shares of ABC stock at $38 and buys 1 ABC Mar 40 Call @ $5. The breakeven point is:
B $33
A customer buys 200 shares of ABC stock at 60 and sells short 100 shares of XYZ stock at 100 on the same day in a margin account. The minimum maintenance margin requirement is:
B $6,000
A customer's margin account shows the following: 100 shares of ABC @ $45 200 shares of PDQ @ $64 200 shares of XYZ @ $72 Debit Balance: $12,000 SMA: $3,850 What is the minimum maintenance margin requirement?
B $7,925
A client owns 500 shares of a company with 5,000,000 shares outstanding. The company will issue 1,000,000 shares through a rights offering. If the client subscribes to the offering, he or she will now own:
B 600 shares
A customer, age 69, has never invested in securities. She is retired with no dependents, living on a fixed pension of $35,000 per year. She has a savings account with $160,000 and her home is fully paid. She desires to supplement her retirement income, assuming minimal risk. The BEST recommendation would be for the customer to invest $100,000 of her cash savings into a(n):
B CMO planned amortization class tranche
A customer holds a large portfolio of corporate bonds. The customer is worried about capital risk. Which diversification strategy would be least effective to minimize capital risk for this customer?
B Diversification among differing denominations
Which of the following statement(s) is (are) TRUE regarding options advertising that is not accompanied by the Options Disclosure Document? I It must be approved prior to use by the designated Registered Options Principal II It must be filed prior to use with the exchange III The use of recommendations, or of past or projected performance, is permitted
B I and II
Customers who trade NYSE listed securities during extended trading hours are: I subject to a higher degree of price volatility than during regular trading hours II subject to a lower degree of price volatility than during regular trading hours III always able to obtain an execution at the market because the Specialist/DMM maintains a continuous auction market IV not always able to obtain an execution at the market because there is no Specialist/DMM maintaining a continuous auction market
B I and IV
If a corporation has an unfunded pension liability which of the following statements are TRUE? I The expected payments from the retirement plan are in excess of the expected future assets in the plan II The expected payments from the retirement plan are lower than the expected future assets in the plan III The plan is in default and must be liquidated by the trustee IV The trustee must ensure that future funding is adequate
B I and IV
If a portfolio manager's market sentiment is bullish, then which of the following are appropriate actions? I Cash positions will be decreased II Cash positions will be increased III Investments in stock positions will be decreased IV Investments in stock positions will be increased
B I and IV
Which statements are TRUE regarding the principal repayments for Companion CMO tranches? I Principal repayments made earlier than expected are applied to the Companion class prior to being applied to the Planned Amortization class II Principal repayments made earlier than expected are applied to the Planned Amortization class prior to being applied to the Companion class III Principal repayments made later than expected are applied to the Companion class prior to being applied to the Planned Amortization class IV Principal repayments made later than expected are applied to the Planned Amortization class prior to being applied to the Companion class
B I and IV
Which statements are TRUE regarding Eurodollar bonds? I Eurodollar bonds are issued within the United States II Eurodollar bonds are issued outside the United States III Eurodollar bonds pay interest and repay principal in Euros IV Eurodollar bonds pay interest and repay principal in U.S. Dollars
B II and IV only
ERISA regulations cover: I public sector retirement plansII private sector retirement plansIII federal government employee retirement plans
B II only
A 5 year 3 1/2% Treasury Note is quoted at 101-4 - 101-8. The note pays interest on Jan 1st and Jul 1st. If a customer buys 5 T-Notes on Friday, April 4th, when does the settlement occur?
B Monday, April 7th
A customer in the highest tax bracket has $500,000 to invest. The customer is not subject to the AMT. The BEST recommendation would be an investment grade:
B Municipal bond yielding 2.70% that is subject to the AMT
Which statement is TRUE about the tax treatment of short sales of securities?
B Short sales can only result in short term capital gain or loss upon covering the short position
Two 10 year General Obligation bonds with the same maturity and credit rating are quoted on a 6.50 basis. One bond has a 7% coupon, while the other has an 8% coupon. If the quote is changed to 6.40%, which statement is TRUE?
B The percentage change in price of the 7% bond will be more than the percentage change in price of the 8% bond
An officer of a listed company calls his registered representative and tells him to buy a large block of that stock. Prior to placing the order to buy, the registered representative calls ten of his customers and tells them to buy that company's stock. Which statement is TRUE?
B This action is a violation of the insider trading rules
A registered representative has a long-term client who works in a bank. The representative tells the client that he wants to buy a new house and has started to look for a mortgage. The client informs the representative that because of their relationship, she can get the representative a better mortgage interest rate than is available to the general public. Which statement is TRUE about this?
B This is prohibited because representatives cannot borrow from bank clients at preferential rates
The manager of an unregistered hedge fund charges a fee of "2 and 20." This means that investors are charged a(n):
B annual management fee against net assets of 2% plus a performance fee based on 20% of profits
An elderly customer normally comes into your branch office each week on Monday to discuss his account and place trades. This week, he comes in on Wednesday, looking confused and disoriented. However, the trade that he wishes to place conforms to his normal investment practice. The representative should:
B contact the firm's compliance department for guidance on how to handle the situation
All of the following statements are true regarding municipal advertising EXCEPT: all municipal advertising must be approved by either theMunicipal Principal or General Principal prior to use copies of municipal advertising must be filed in advance of first use with the Municipal Securities Rule making Board copies of municipal advertising must be retained by the member for 4 years Official Statements are exempted from the advertising rules
B copies of municipal advertising must be filed in advance of first use with the Municipal Securities Rule making Board
A corporation is going to tender for 75% of its 10% subordinated debentures, M '25. The price of the offer will be decided by the:
B issuer
A customer who is short 1 ABC Jan 40 Put wishes to create a "short put spread." The second option position that the customer must take is:
B long 1 ABC Jan 30 Put
Growth companies are characterized by:
B low dividend payout ratios and high price / earnings ratios
If a municipal securities firm is subject to a 2-year ban under MSRB Rule G-37, it would be permitted to:
B place a bid for a competitive offer of general obligation bonds being sold at auction by that issuer
If a customer sells short a security that is on the "threshold list" and the member firm fails to deliver the security on settlement, the:
B security must be bought-in no later than 13 consecutive settlement days from trade date
A customer sells short 200 shares of ABC at $30 in a margin account. The stock immediately falls to $20. Payment is received from the customer 6 business days after trade date. All of the following statements are true EXCEPT: the Regulation T requirement is $3,000 the customer may reduce the Regulation T requirement by 50% of the subsequent profit the customer may borrow $3,000 from the account if an extension was not requested, the account will be frozen
B the customer may reduce the Regulation T requirement by 50% of the subsequent profit
If a corporation has an operating margin of profit of 9.50%, this means that for every $1 of revenue, the company has:
C $.905 of expenses
Rule 105 of Regulation M, covering transactions that occur in the secondary market during the 20-day cooling off period for "add on" securities offerings, requires that any short sales of the issue that occur:
C 5 business days prior to the effective date cannot be covered by purchasing the issue from the syndicate
A corporation buys the stock of another company. Which percentage of dividends received from the investment in the acquired company's shares are excluded from tax to the corporate purchaser of those shares?
C 50%
Under Keogh rules, any distributions from a Keogh Plan must start no later than:
C April 1st of the year following the year the individual turns 72
If a regulated mutual fund pays out a dividend and capital gains distribution, which the shareholder has automatically reinvested, which statement is TRUE?
C Both the dividend and the capital gain are taxable
Interest income from which of the following is SUBJECT to state and local taxes?
C Federal National Mortgage Association issues
Which of the following are arbitrage transactions? I Buy a security on the NYSE / Sell that security on the PHLX II Buy a security on the NYSE / Sell that security on the NYSE III Buy the stock of one company that is the target of a tender offer / Sell the stock of the company that is making the offer IV Buy a convertible bond on the NYSE / Sell the common stock of the same issuer on the NYSE
C I, III, IV
"QUBES" are: I a mutual fund II an exchange traded fund III based on the NASDAQ 100 Index IV based on the NASDAQ Composite Index
C II and III
In a municipal bond contract, a "covenant of defeasance" would be invoked if: I interest rates have risen subsequent to bond issuance II interest rates have dropped subsequent to bond issuance III call premiums on the issue are low IV call premiums on the issue are high
C II and III
If an unsolicited facsimile is sent to a potential client, which of the following information must be sent? I Date and number of sheets II Identity of sender III Time, place and address from which sent IV Phone number from which sent
C II, III, IV
Which of the following investments is LEAST liquid?
C Private placements
A customer has invested $200,000 in a CMO. In the first year, the customer receives $30,000 of payments, which consist of $20,000 of interest and $10,000 of principal. Which statement is TRUE?
C The $10,000 of principal is not taxable and the $20,000 of interest is taxable
A municipal issuer sells $5,000,000 of a $10,000,000 bank qualified issue to a bank trust department. Which statement is true?
C The bank can deduct 80% of the related interest carrying charges on the funds used to purchase the bonds
An elderly customer that is interested in buying a mutual fund asks her registered representative to highlight the most important information in the prospectus, so that it is easier for her to understand the merits and risks of the investment. Which statement is TRUE about this request?
C The registered representative cannot honor the customer's request, but can offer to answer any questions that she has about the information in the prospectus
A portfolio with a beta of +1.5 has:
C both systematic and non-systematic
The flow of funds set forth in a revenue bond Trust Indenture details the:
C priority of collecting and disbursing pledged revenues
All of the following are true statements regarding both Treasury Bills and Treasury Receipts EXCEPT: interest is paid at maturity the securities are sold at a discount the maturity is 1 year or less payment of interest and principal on the underlying security is guaranteed by the U.S. Government
C the maturity is 1 year or less
An investor sells short 200 shares of ABC stock at $22 and sells 2 ABC Nov 20 Puts @ $1 on the same day in a margin account. The breakeven point is:
D $23
Customer fails to deliver must be bought in:
D 10 business days after settlement date
A customer owns 200 shares of ABC stock. ABC is having a rights offering where 20 rights are needed to subscribe to 1 new share. The customer will receive:
D 200 rights
In 2020, a customer buys 1 GE 8%, $1,000 par debenture, M '35, at 85. The interest payment dates are Jan 1st and Jul 1st. The yield to maturity on the bond is:
D 9.73%
The DMM (Specialist) on the NYSE, just prior to market opening, has orders to sell 100,000,000 shares of ABC stock at the open, but only has orders to buy 5,000,000 shares. Because of the extreme order imbalance, the DMM, at the open, displays "ABC - OPD" on the Network A Tape. Which statement about this is FALSE? The NYSE has delayed the opening of the stock Other markets are permitted to trade the stock This is a non-regulatory trading halt Any other market that wishes to trade the stock during the halt must get prior FINRA approval
D Any other market that wishes to trade the stock during the halt must get prior FINRA approval
An institutional client wishes to open an account at a brokerage firm, but wants the positions in the account held at a bank and not by the broker. What type of account should be opened?
D Delivery versus payment account
A municipal "GAN" could be backed by all of the following EXCEPT: A Federal transit assistance monies Federal pollution control assistance monies Federal energy conservation assistance monies Federal tax collection monies
D Federal tax collection monies
Which of following will create a "covered" short put position under O.C.C. rules? I Long a put on the same stock with the same strike price or higher with the same expiration or later II Bank Guarantee Letter III Short stock position in the underlying security
D I, II, III
Which of the following are considered in determining a fair and reasonable price in a municipal agency transaction? I Availability of the security II Expenses associated with effecting the transaction III Value of services rendered by the municipal broker IV Value of any other compensation received in connection with this transaction
D I, II, III, IV
Which of the following practices are prohibited under FINRA rules? I Trading mutual fund shares II Selling dividends III Making blanket recommendations of low price speculative stocks IV Recommending purchases beyond a customer's financial capacity
D I, II, III, IV
f an analyst subscribes to the Put / Call ratio and sees that the ratio is much higher than average, which of the following statements are TRUE? I The market is considered to be "overbought" II The market is considered to be "oversold" III The market is ready to move lower IV The market is ready to move higher
D II and IV
Which of the following items are taxable to a limited partnership? I Short Term Gains II Long Term Gains III Ordinary Income
D None of the above
All of the following securities can be sold by an individual holding an investment companies/variable annuities registered representative's license (Series 6) EXCEPT: Municipal Investment Trusts Common Stock Funds Municipal Bond Funds Real Estate Investment Trusts
D Real Estate Investment Trusts
Which statement is BEST regarding participating preferred stock?
D The dividend rate is fixed as to minimum but not as to maximum
A FINRA member firm uses a structure for its wealthy client group where a "team" of registered representatives with differing specializations services those accounts. In order to do this, the member firm must:
D document the role and responsibilities of each member of the team
A client has a portfolio of $2,000,000 that consists of $600,000 of an Energy ETF; $600,000 of a Gold/Precious Metals ETF; $600,000 of a Uranium/Oil ETF and $200,000 of short term Treasury securities. This customer's investment objective is:
D growth
Electronic delivery of a prospectus is NOT permitted for: common stock issues preferred stock issues corporate debt issues investment company issues
D investment company issues
All of the following cover a short call contract according to O.C.C. rules EXCEPT being long: the stock a security that is convertible into the stock position a fully paid warrant exercisable into the stock position the cash value of the stock
D the cash value of the stock
In the weekly auction of Treasury Bills, which orders are always filled?
Non-Competitive Bid
The "Trade-Through" rule of Regulation NMS applies to all of the following EXCEPT: NYSE issues NYSE American (AMEX) issues NASDAQ issues OTCBB issues
OTCBB issues
Regarding options sales literature, which statement is TRUE?
Options sales literature that shows performance must be accompanied or preceded by the latest Options Disclosure Document
On the New York Stock Exchange, which of the following persons will handle odd lot transactions?
Specialist(DMM)
A customer has a long OEX call contract position in his account and wishes to exercise the option. Which statement is TRUE?
The holder will receive an amount of cash that is equal to the intrinsic value times the contract multiplier
All of the following statements are true regarding warrants EXCEPT: Warrants generally have a life of 2 months At issuance, the exercise price of the warrant is set higher than the current market price of the underlying common stock The price of the warrant will vary with the price movements of the underlying stock The price of the warrant will vary depending upon the time to expiration of the warrant
Warrants generally have a life of 2 months
All of the following activities are prohibited during the "cooling off" period EXCEPT: accepting an order for the issue in registration confirming a certain amount of the issue to a customer accepting a check from a customer for the part of the issue accepting an indication of interest from the customer for part of the issue
accepting an indication of interest from the customer for part of the issue
All of the following actions taken by the Fed would increase interest rates EXCEPT: reverse repurchase agreements buying securities from government dealers draining money from the money supply raising the discount rate
buying securities from government dealers
All of the following are contrarian market theories EXCEPT: short interest theory put/call ratio theory odd lot theory efficient market theory
efficient market theory
A variable annuity is a:
participating unit investment trust
If a customer buys a pre-refunded bond, the yield shown on the confirmation will be computed based upon the:
yield to call
