Series 7 Missed Questions

An American business is exporting goods to Japan. Which option position would BEST hedge the firm's currency risk?

Buy yen puts

An investor purchases a 20-year 5.30% bond at par value that will yield 5.75% if called at the first call date in five years. The yield to maturity on the bond is:

5.30%

An individual purchases 10 ABC June 90 calls @ 4 and writes 10 ABC June 95 calls @ 2. The individual's maximum loss is:

$2,000

An investor owns convertible preferred stock that was originally purchased at $106. The stock is convertible at $25 and has a current market price of $112. If the common stock is currently trading at $27.75 and the investor decides to convert the preferred stock into common stock, the cost basis per share for the newly acquired common stock is:

$26.50

An investor writes 5 uncovered ABC May 35 puts for a premium of 3 per contract, when ABC has a market price of $36. At what market price will the investor break even?

$32

An investor purchases 200 shares of STC at $35 and subsequently purchases 2 STC Jan 35 puts at 2. If the puts expire, what is the investor's profit or loss?

$400 loss

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 MM group and $5 MM designated

A customer buys an ABC July 50 call, paying a $3 premium. Seven months later, the customer exercises the call when the market price of ABC stock is $60 per share. The customer immediately sells the stock for $6,000. When computing the profit, the customer will use a cost basis of:

$5,300

A margin account with 50% equity has a long market value of $15,000. If $80 of interest is charged on the debit balance and $110 is credited in dividends, what's the revised debit balance?

$7,470

A corporation is issuing 5,000,000 shares of stock at a public offering price of $13 per share. The manager of the underwriting syndicate receives $0.15 per share. The syndicate members' compensation is $0.65 per share for each share they sell. The selling group's concession is $0.40 per share for each share they sell. The syndicate is allocated 4,000,000 shares and the selling group is allocated 1,000,000 shares. When the issue is completely sold, the managing underwriter's fee will total:

$750,000

A 65-year-old individual has retired and started receiving money from a qualified variable annuity. Which TWO of the following statements are TRUE concerning the distributions from the annuity? 1. It is treated as ordinary income for tax purposes 2. It is fully taxable at the investor's tax bracket 3. It is treated as a capital gain for tax purposes 4. It is partially taxable at the investor's tax bracket

1 & 2

A customer has purchased a new municipal issue during the underwriting period. According to MSRB rules, the customer must receive which TWO of the following documents? 1. The final confirmation showing the aggregate price 2. A copy of the notice of sale 3. A copy of the official statement, if prepared 4. A list of syndicate members

1 & 3

A fundamental analyst is NOT interested in which TWO of the following metrics? 1. Short interest 2. The P/E ratio 3. Trading volume 4. EPS

1 & 3

Which TWO of the following choices are characteristics of reverse convertible securities? 1. The coupon rate is usually above prevailing market rates 2. The coupon rate is usually below prevailing market rates 3. The investor may have an obligation to purchase shares of an equity security 4. The investor may have the right to sell shares of an equity security

1 & 3

Which TWO of the following choices can be calculated by examining the income statement of a company? 1. The earnings before interest and tax (EBIT) 2. The debt-to-equity ratio 3. The operating profit margin 4. The amount of working capital

1 & 3

A transaction for a stock that is not DTCC eligible, settles on a regular-way basis. This means that settlement occurs: 1. In two business days 2. In four business days 3. At the buyer's premises 4. At the seller's premises

1 & 3 Only

A company that manufactures solar panels has approached an investment banker to help the firm raise capital for its new manufacturing plant in Colorado. The firm wants to raise capital in a private placement, and the CFO of the company wants to know the difference between convertible debt and debt with warrants attached. Which TWO of the following statements are TRUE? 1. If convertible bonds are exchanged for common stock, the debt will no longer be part of the company's capital structure 2. If the debt with warrants attached is exchanged for common stock, the debt will no longer be part of the company's capital structure 3. If convertible bonds are exchanged for common stock, the company will raise additional capital 4. If the debt with warrants attached is exchanged for common stock, the company will raise additional capital

1 & 4

ABC Corporation bonds are convertible at $50. If the bonds are selling in the market for 90 ($900) and the common stock is selling for $43, which TWO of the following statements are TRUE? 1. The stock is selling at a discount to parity with the bond 2. The stock is selling at a premium to parity with the bond 3. Liquidating the stock after converting the bond would be currently profitable 4. Liquidating the stock after converting the bond would not be currently profitable

1 & 4

Structured products may: 1. Offer returns linked to equity securities 2. Not offer returns linked to commodities 3. Not offer returns linked to interest rates 4. Be formulated to provide principal protection

1 & 4

When evaluating two CMOs backed by GNMAs, one having a 6% yield and the other having a 10% yield, which TWO of the following statements are TRUE? Prepayment risk is greater for the CMO with the 10% yield Prepayment risk is greater for the CMO with the 6% yield Credit risk is greater for the 10% CMO Credit risk is the same for both securities

1 & 4

Which TWO of the following statements are TRUE concerning the characteristics of preferred stock? 1. The securities do not have a fixed maturity date 2. The price of these securities is more volatile than common stock 3. The dividend will be paid annually 4. The price will fluctuate based primarily on changes in interest rates

1 & 4

Which TWO of the following statements are TRUE regarding Eurodollar bonds?They are denominated in U.S. dollars onlyThey are denominated in foreign currencies onlyThey are only traded outside of the U.S.They are traded in the U.S. and international markets

1 & 4

Which TWO of the following securities would be MOST suitable if interest rates are expected to rise? 1. Collateralized Mortgage Obligations 2. A bond with short-term maturities 3. Preferred stock with a fixed dividend 4. Adjustable-rate preferred stock

2 & 4

A company that manufactures solar panels has approached an investment banker to help the firm raise capital for its new manufacturing plant in Colorado. The firm wants to raise capital in a private placement, and the CFO of the company wants to know the difference between convertible debt and debt with warrants attached. Which TWO of the following statements are TRUE? 1. Both convertible debt and debt issued with warrants attached will trade as one unit each 2. Convertible debt trades as one unit, but debt issued with warrants attached trades as two separate units 3. Both convertible debt and debt issued with warrants attached have a potential dilutive effect on the common stockholders 4. Convertible debt has a dilutive effect on common shares, but debt issued with warrants does not

2 & 3

A client owns 3,000 shares of stock in a company headquartered outside the U.S. The client receives a cash dividend and tax is withheld by the country where the company is located. Which TWO of the following statements are TRUE concerning the U.S. tax implications for the client?The dividend received is treated as a return of capitalThe taxes paid may be used as a creditThe dividend paid is exempt from taxesThe taxes paid may be used as a deduction

2 & 4

A registered representative is reviewing a corporation's financial statements. Which TWO of the following statements are TRUE concerning an issuer's bond interest expense? 1. The annual interest payments are found on the balance sheet 2. The annual interest payments are found on the income statement 3. The interest payment is deducted from net income 4. The interest payment is deducted from EBIT

2 & 4

An investor has been making payments into a variable annuity for the last 20 years. The investor decides to annuitize and selects a straight-life payout. Which TWO of the following statements are TRUE? 1. The investment risk is assumed by the insurance company 2. The investment risk is assumed by the customer 3. The amount of the payment to the customer is guaranteed by the insurance company 4. The amount of the payment to the customer is not guaranteed

2 & 4

Two similar companies issue bonds at the same time. One company issues convertible bonds and the other issues nonconvertible bonds. Which two of the following statements are TRUE? 1. The convertible bonds will probably offer a higher coupon rate. 2. The convertible bonds will probably offer a lower coupon rate. 3. The convertible bonds will probably have a higher current yield. 4. The nonconvertible bonds will probably have a higher yield to maturity.

2 & 4

When general obligation bonds are analyzed, the credit analysis will be affected by which TWO of the following factors? 1. Feasibility studies 2. The tax collection record of the municipality 3. The debt service coverage ratio 4. An evaluation of the debt to real estate value ratios in the municipality

2 & 4

Which TWO of the following statements concerning convertible bonds are TRUE? 1. Coupon rates are usually higher than nonconvertible bonds of the same issuer 2. Convertible bondholders are considered creditors of the corporation 3. Convertible bonds are usually issued by companies with strong credit ratings 4. It is possible that a convertible bond will sell at a price based solely on its inherent value as a bond

2 & 4

Which TWO of the following types of municipal securities does NOT require voter approval? 1. A general obligation bond backed by income taxes 2. A special tax bond 3. A bond backed by ad valorem taxes 4. A certificate of participation

2 & 4

A convertible bond is convertible at $25 and is selling in the market at 108. At what price should the common stock be selling for it to be at parity with the bond?

27

Listed equity options cease trading at:

4:00 p.m. Eastern Time on the expiration date

A mutual fund has a bid price of $13.00 and an offer price of $14.20. The sales charge, when computed as a percentage of the offering price, is approximately:

8.5%

A 75-year-old client is looking for a high level of income for his retirement fund. He wishes to maintain a balance between income and safety of principal. Which of the following funds would MOST likely meet this requirement?

A GNMA fund

Which of the following best describes a guaranteed bond?

A bond for which another corporation promises to pay interest and principal if necessary.

Regulation SHO requires which of the following actions?

A broker-dealer must satisfy the locate requirement before allowing a customer to execute a short sale.

On February 13, an investor sold 700 shares of ABC stock for a loss. On the next day, the investor purchased 3 ABC February calls. Which of the following statements is TRUE?

A portion of the loss from the sale of the stock will be disallowed

Regarding communications, which of the following statements is TRUE concerning the responsibilities of a principal of a broker-dealer?

A principal must approve retail communications prior to use.

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

After six months

A registered representative has a 33-year-old client with a stable income with no foreseeable need to access money. The client is looking for a long-term investment that will offer a guaranteed rate of return, that can also share in the performance of the stock market, and offers some form of death benefit. Which of the following investments is MOST suitable for this client?

An equity-indexed annuity

Which of the following issuers is able to seek a registration exemption under Regulation A?

An issuer that's offering an aggregate of $45 million of common stock, which includes $12.5 million being sold on behalf of existing shareholders.

Cash dividends declared by a corporation:

Are a current liability to the corporation when declared

Which of the following is NOT one of the "doing business" requirements that are established under Rule 147 or Rule 147A?

At least 80% of the issuer's employees are based in one state

An investor is long 100 shares of XYZ at $54 per share. The stock is currently trading at $70. The investor thinks the stock may continue to rise but is fearful of a decline and wishes to protect most of her profit. In this situation, the MOST appropriate recommendation is to:

Buy a 70 put for a premium of 4

Which of the following is the lowest Moody's investment grade bond rating?

Baa

Which of the following is the lowest Moody's investment-grade bond rating?

Baa

An individual who's considering moving to the payout phase of a variable annuity should understand that the payments will:

Be based on the performance of the subaccount products in the separate account compared to the AIR

A due bill is used if a trade occurs:

Before the ex-dividend date, with delivery made after the record date

An investor bought 5 NJF June 45 puts for a premium of 3 points per contract. For these options to have intrinsic value, the market price of NJF needs to be:

Below $45

An article in The Wall Street Journal states that yields on Treasury bills have declined in the past month to 4.58% from 4.61%. This indicates that:

Buyers of new bills paid more than buyers paid the previous month

Your client owns a convertible bond that has been called at 104. The bond is convertible at 40 and is selling in the market at 107. The common stock is selling in the market at 41. Which of the following choices is the LEAST attractive alternative to the client?

Convert the bond to common stock and sell the common stock

A security that pays a fixed amount twice a year, and also allows the holder to profit if the common stock rises, is known as a:

Convertible bond

For an investor seeking income, which of the following is the MOST suitable investment in an IRA?

Corporate bonds

A customer who's in his late 20s wants capital appreciation and is willing to take a moderate degree of risk in his initial investment. If the customer is also concerned about the inflationary risk to his portfolio, which of the following investments is MOST suitable?

Equities

Which option position is bearish?

Debit put spread

Which of the following interest-rate environments makes call protection MOST valuable to a purchaser of bonds?

Decreasing interest rates

The process of a customer instructing his bank to deliver cash when securities are received from the clearing firm, is referred to as:

Delivery versus Payment (DVP)

A registered representative (RR) has discretionary authority over a customer's account and has determined a limited partnership investment is suitable for the customer. In order to invest in the partnership, the RR may:

Do so with the written approval from the customer

Which of the following statements is NOT TRUE about exchange-traded notes (ETNs)?

ETNs generally pay a fixed coupon rate

A brokerage firm customer has a margin account in which there's activity each month. The firm will typically send the customer an account statement:

Each month during which there's activity

Which of the following statements is TRUE concerning a customer who purchases an out-of-state original issue discount (OID) general obligation bond?

Each year the customer will pay only state and local income tax

When analyzing the credit risk of an issuer of general obligation bonds, which of the following is NOT a concern?

Existing or potential competitive facilities

Regarding oil and natural gas programs, which of the following statements is TRUE?

Exploratory programs are more risky than developmental programs.

A corporation's long-term debt would most likely be called when interest rates:

Fall below the bond's nominal yield

Retail communications that pertain to mutual fund shares must be:

Filed with FINRA within 10 business days of first use

During annuitization, a variable annuity owner will receive payments that are based on a:

Fixed number of annuity units

On September 1, an underwriter offers stock that has been registered with the SEC. This is the first offering of stock made by the issuing company. The issue will be listed on the New York Stock Exchange. A dealer that subsequently sells the stock in the secondary market will be required to furnish a prospectus:

For a period of 25 days following the initial offering

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

Form CRS

An individual owns shares of a mutual fund and wants to switch to an ETF because of potential tax advantages provided by ETFs. Which of the following statements is TRUE regarding the taxation of ETFs?

Gains are only realized on ETFs when the shares are sold.

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

General partner

A limited partner is considered accepted into a limited partnership when the:

General partner signs and approves the subscription agreement

A mutual fund that invests primarily in small-cap and micro-cap stocks is most likely to have a beta that's:

Greater than 1

If a stock is not listed on an exchange and not quoted in the OTC market, the stock is considered to be in the:

Grey market

A prime brokerage account would MOST likely be established for a(n):

Hedge fund

A 57-year old father was in the accumulation phase of his variable annuity when he passed away. What are the tax implications if the annuity is inherited by his son?

If liquidated, any amount above the cost basis is taxed as ordinary income to the son.

Various tranches of a long-term speculative bond issue are called by the issuer. The effect on the remaining outstanding bonds is likely to be:

Improved quality

TIPS were created to address which type of risk?

Inflation risk

TUV Sep 5.00 puts trade on the CBOE. With the approval of its shareholders, TUV Corporation will reduce its outstanding shares by a factor of 20, which has the effect of increasing its market price 20-fold. What effect will this have on the TUV Sep 5.00 put?

Investors who previously owned 1 TUV Sep 5.00 put will now own 1 TUV Sep 100 put

A bond is selling at a premium and yields have remained constant. As the bond gets closer to its maturity, what happens to its price?

It decreases

If an issuer's convertible bonds are converted by bondholders, what is the effect on the issuer's outstanding common stock?

It will increase the number of outstanding shares.

A company currently has $125,000,000 of 3 1/4% convertible bonds. The company is going to offer bondholders $125,000,000 of 3 1/4% nonconvertible bonds plus cash of $15,000,000 for the convertible bonds. How will this transaction, if successful, affect the company's financial status?

It will reduce the cash position and the potential dilutive effect on the common stock

Which of the following statements is TRUE about the call premium of a bond?

It's the amount over par value that the issuer must pay to exercise the call privilege.

All of the following actions create a conflict of interest for a general partner, EXCEPT if the general partner is:

Lending money to the partnership at prevailing interest rates

George has the following position in his account: Long 1 XYZ Nov 45 call By adding which of the following positions creates a combination?

Long 1 XYZ Nov 40 put

An investor is short 2,000 XYZ calls. In determining position limits, which of the following choices will be totaled with the short calls?

Long XYZ puts

During periods of deflation, which of the following investments tends to perform the best?

Long-term debt

An employee of a brokerage firm has decided to open an account with an investment company to purchase various mutual funds under the company's complex of funds. The employee:

May open the account without notifying either firm

Collateralized mortgage obligations (CMOs) make interest payments to investors:

Monthly

When a carrying firm receives a transfer request from the Automated Customer Account Transfer Service (ACATS) system, it must validate or protest the transfer within:

One business day

A primary offering of securities is being made for a company listed on the NYSE. Prospectuses must be delivered:

Only on purchases made at the public offering price

An individual has made before- and after-tax contributions to her traditional IRA. When she begins taking distributions after age 59 1/2, they would be taxed as:

Part ordinary income and part return of capital

An individual places an order to be executed in her traditional IRA, but it was accidentally executed in her Roth IRA. After notifying the principal, what should the registered representative do?

Perform a cancel and rebill to the traditional IRA.

Which of the following risks is considered unique to an investor holding a CMO?

Prepayment risk

Which of the following situations BEST describes acting in a net basis capacity?

Prior to filling a customer's buy order, a dealer buys stock into inventory and resells it to the customer at a higher price

Mr. Smith purchases 100 shares of MNP @ 30 and also purchases 1 MNP May 30 put @ 3. Mr. Smith is:

Protected from a decline in the market until the option expires

Money put aside on a municipal revenue issue for the betterment and improvement of the facility is placed in the:

Renewal and replacement fund

A registered representative invites 40 clients to an investing seminar, the sales script that's used for the presentation is considered:

Retail communication

Which of the following investors is LEAST likely to purchase a collateralized debt obligation (CDO)?

Robert & Susan Abramowitz, JTWROS

Lyle, Molly, and Seena have a joint account registered as Tenants in Common. In the event that Seena dies, which of the following statements is TRUE?

Seena's estate has a claim on her portion of the account's assets

An investor has purchased 1,000 shares of XYZ stock. Which of the following option transactions will provide the most effective means of reducing the cost of the stock?

Selling 10 XYZ calls

If a company declares a cash dividend, which of the following is TRUE?

Shareholders' equity decreases

An investor is long 1,000 shares of XYZ at $32 per share and the current market value of XYZ is $38. The investor believes the stock is not likely to fluctuate over the next few months and actually has a long-term bullish outlook. Which of the following positions will allow the investor to increase the portfolio's yield without increasing the downside risk?

Short 10 XYZ 40 calls

Which of the following positions would be considered a covered option?

Short the stock, short a put

Which of the following choices will NOT affect the SMA in a long margin account?

Stock dividends paid on securities held in the margin account

As it relates to convertible bonds, which of the following provides an arbitrage opportunity?

Stock trading at a premium to parity.

Which action is NOT taken by the receiving firm when processing an Automated Customer Account Transfer Service (ACATS) request?

Submission of the asset input data

An investor must pay accrued interest for a secondary market purchase of:

Tax anticipation notes

When a beneficiary receives the death benefit from a variable annuity, the amount received is:

Taxable above the cost basis to the beneficiary

Which of the following is MOST important when opening an account and making a recommendation to a customer?

That the recommendation is in the customer's best interest

A customer sells short 1,000 shares of DT at $60 a share on Monday, October 14 and deposits the Regulation T margin requirement. If on October 23 the stock is trading at $75 a share, which of the following statements is TRUE?

The account will be adjusted on October 23 and a margin maintenance call will be issued

Relating to a municipal bond swap, which of the following would NOT be a consideration?

The amount of accrued interest

A 3-month Treasury bill is issued at a discount to yield 9.5%, and a corporate bond is issued to yield 9.5%. The bond is to mature in 10 years. If both are offered on the same day on a bond equivalent yield basis, which of the following statements is TRUE?

The bill has a greater yield than the bond

All of the following choices are disadvantages for a limited partner, EXCEPT:

The conduit (flow-through) treatment for income and loss

If a bond is currently selling at a premium, then:

The current yield is lower than the nominal yield

The Founders Income Fund has declared a dividend that is payable to stockholders of record on Thursday, May 29. This mutual fund's ex-dividend will typically be on:

The date that is set by the fund or its principal underwriter (sponsor)

All of the following are TRUE of a bond selling above par, EXCEPT:

The nominal yield is less than the current yield

A margin disclosure document would NOT include which of the following statements?

The firm can change the method of calculating interest charges without advance written notice.

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 $10 long-term capital gain.

A client buys 100 shares of MTB at $58 per share and writes 2 MTB October 60 calls at 3. Which of the following statements is TRUE?

The maximum loss is unlimited

The ABC Growth Fund has been in existence for six years. An advertisement that refers to its ranking based on total return must refer to the total return for:

The one- and five-year periods by the same ranking entity

A person purchased a variable life contract one year ago. Although the contract performed well, the policyholder has never really understood the policy and has informed his RR that he wants out of the contract. What option is available to the policyholder?

The policyholder may be able to convert his policy into a whole life contract that is offered by the same firm.

A technical analyst does NOT review:

The price-earnings ratio of the Dow Jones stocks

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

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

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 broker-dealer's error account.

An investor purchases an EPG Jan 40 put at 5 and writes an EPG Jan 50 put at 13. The investor would profit in all of the following situations, EXCEPT:

The spread widens

If the purchaser of a non-qualified annuity dies at the age of 56, which of the following BEST describes the tax impact?

There is no penalty assessed and the difference between the amount invested and the death benefit is taxable at ordinary income tax rates

Which of the following statements is TRUE regarding the supervision of real-time communication through social networking sites?

This communication is regulated in a manner that's similar to correspondence.

Once an Automated Customer Account Transfer Service (ACATS) transfer request has been validated, depository-eligible securities should be transferred within:

Three business days

If a municipal bond is selling at a premium and is callable at par, how is the yield calculated?

To the call date

If an investor expects interest rates to fall significantly in the next two years, what would be the most appropriate investment?

Treasury bonds

The securities that are deposited in an escrow account for an advance refunding of a municipal bond are:

Treasury bonds

When a municipal bond is to be advance-refunded (prerefunded), an escrow account is set up to insure that the money will be available. Securities are deposited in the escrow account. The securities that are deposited in the escrow account are:

Treasury bonds

Which of the following choices BEST describes Eurodollars?

U.S. dollars on deposit in foreign banks

As a retirement vehicle, which of the following choices would probably provide the greatest protection of purchasing power?

Variable annuities

If a customer places an order to buy bonds at 104 net, it indicates that the customer:

Wants to pay a maximum of 104 including any markup or commission

The record date of a company's cash dividend is Thursday, October 7. Before what date must a customer purchase this company's stock to be entitled to receive the dividend?

Wednesday, October 6

What information is NOT found on a municipal bond confirmation?

Whether the bonds are subject to state income tax

Which of the following calculations describes the payout on a variable annuity?

Which of the following calculations describes the payout on a variable annuity?