Series 7, Mastery Exam
A market maker sold 100 shares of stock to a customer at 17.90 when the market maker's market was 17.25- 17.70. At the time of the trade, the inside market was 17.30- 17.60. What is the amount of the markup? A) 0.20. B) 0.65. C) 0.30. D) 0.60.
? C) 0.30.
A customer buys 1 ABC Jul 35 put at 3 when ABC is trading at 36. Maximum potential gain is: A) 3200. B) 3800. C) 3500. D) 300.
A) 3200
A member firm is underwriting an initial public offering of common stock for ABCD Corp., a new issue that will trade on the OTCBB. A prospectus must be provided to all purchasers for how many days following the effective date? A) 90. B) 25. C) 60. D) 40.
A) 90. 90 days OTCBB or Pink 25 days listed 40 days non nasdaq
The Federal Reserve Board (FRB) has announced actions to increase the money supply. Which of the following would you expect to see increase the soonest? A) Production. B) Pass book savings account rates. C) Corporate profits. D) Unemployment.
A) Production.
A decrease in business activity and sales would most likely be associated with an increase in: A) inventory levels. B) plant and equipment expenditures. C) personal income. D) building permits.
A) inventory levels.
An example of a security that cannot trade in the secondary market would be: A) open-end investment company shares. B) municipal bonds. C) American depositary receipts. D) government agency securities.
A) open-end investment company shares.
There are some actions taken by corporations that do not require shareholder approval. One such action would be: A) the declaration of a stock dividend. B) the declaration of a stock split. C) the issuance of convertible corporate bonds. D) issuing additional common stock.
A) the declaration of a stock dividend. Shareholder approval is not required for the payment of dividends, but is normally required for actions that increase (or potentially increase) the number of shares outstanding, such as stock splits and the issuance of convertible bonds. A corporation's acceptance of a tender offer requires shareholder approval.
An investor purchases a 7% GO bond on a 7.30 basis. If the bond is callable in 5 years at par and matures in 10 years, it is TRUE that: A) Nominal yield is higher than YTC. B) YTC is higher than YTM. C) Nominal yield is higher than YTM. D) YTC is lower than YTM.
B) YTC is higher than YTM
When opening a custodial account under the Uniform Gift to Minors Act: A) the account may be established for more than one minor. B) gifts given cannot be reclaimed. C) the custodian and the donor must be the same individual. D) the maximum amount that may be given to the minor by an adult is limited.
B) gifts given cannot be reclaimed.
Which of the following CMO tranches are retired first and offer protection from prepayment and extension risk? A) TACs. B) Z-Tranches. C) PACs. D) IOs.
C) PACs.
Your client has sold 300 shares of stock. All of the following are considered good delivery EXCEPT: A) three 60-share certificates and three 40-share certificates. B) two 100-share certificates, one 60-share certificate, and one 40-share certificate. C) four 75-share certificates. D) one 300-share certificate.
C) four 75-share certificates. To be good delivery, certificates must generally be stackable, or breakable, into 100-share units or multiples of 100.
In order to sell stock of his company at a profit that was initially purchased in the secondary market, a corporate officer may do so after a holding period of at least: A) 3 years. B) 2 years. C) 6 months. D) 1 year.
D) 1 year
A 5% municipal bond is purchased in the secondary market on a 4% YTM basis. From this information, it can be determined that: the investor has purchased the bond at a discount. the investor has purchased the bond at a premium. accretion is required to determine the cost basis of the bond at maturity. the bond's cost basis at maturity will equal par. A) I and IV. B) II and III. C) I and III. D) II and IV.
D) II and IV.
Your client, age 71 and not yet retired, wants to continue contributing to a retirement plan for as long as possible. Which of the following plans would not allow contributions to be made for someone his age? A) SEP IRA. B) ROTH IRA. C) 401(k). D) Traditional IRA.
D) Traditional IRA.
A customer's portfolio consists of a food company stock and two utility stocks. You would characterize the customer's portfolio as being: A) diversified. B) balanced. C) cyclical. D) defensive.
D) defensive.
A technical analyst notices a head and shoulders top formation on a chart. The formation is generally an indicator of A) a breakout below the support level. B) the reversal of a downtrend. C) a breakout above the resistance level. D) the reversal of an upward trend.
D) the reversal of an upward trend.
A registered representative recommending an exchange traded index fund (ETF) to a client could accurately explain that these funds: I. are actively managed. II. are passively managed. III. have low expense ratios. IV. have high expense ratios. II and IV. I and IV. II and III. I and III.
II and III
Certain order types on the order book are reduced for cash dividends on the ex-dividend date. These order types are: I. buy stops. II. buy limits. III. sell stop limits. IV. sell limits. II and IV. I and III. II and III. I and IV.
II and III Below CMV
An appeal of an adverse Code of Procedure decision may be made by either party within: 30 days of the decision date. 45 days of the decision date. 25 days of the decision date. 10 days of the decision date.
25 days
Your client wishes to sell XYZ short. You explain that this can be done: A) only if the stock ticks up in price first. B) only on the last trade of the day. C) at any time during the trading day. D) only on the opening trade of the day.
? C) at any time during the trading day.
All of the following municipal bonds are callable at par. Yield to call must be displayed on which of the following confirmations? A) 5.5%, 5% YTM basis, maturing 2014. B) 5.5%, at par, maturing 2010. C) 6%, 6.5% YTM basis, maturing 2010. D) 6%, 6.5% YTM basis, maturing 2014.
A) 5.5%, 5% YTM basis, maturing 2014.
Which of the following states that the pricing of a stock should take into account systematic risk as well as the expected return of a theoretical risk-free asset? A) Capital asset pricing model (CAPM) B) Modern Portfolio Theory C) Random Walk Theory D) The DOW Theory
A) Capital asset pricing model (CAPM)
When does settlement between a dealer and the U.S. Treasury take place for newly issued T-bills purchased through the weekly T-bill auction? A) The issue date, which is Thursday of that week. B) 2 business days following the auction. C) The same day. D) The next business day.
A) The issue date, which is Thursday of that week.
Your client has sold securities in a long margin account. All of the following are affected by the sale of these securities in the account EXCEPT: A) equity. B) market value. C) SMA. D) debit balance.
A) equity. When securities in a margin account are sold, the market value in the account will decline, the debit balance will be reduced by the cash proceeds, and SMA will increase by 50% of the sale. Equity in the account will not be affected unless the customer decides to withdraw some of the proceeds through the use of SMA.
In examining the balance sheet of a corporation, you would expect to be able to determine: A) the net worth of the firm on the date of the balance sheet. B) net sales for each of the past 5 years. C) the corporation's gross revenues for the year. D) the amount of cash expended each quarter.
A) the net worth of the firm on the date of the balance sheet. The balance sheet also called the statement of financial position, reports three items: assets, liabilities, and stockholder's equity
With Regulation T at 50%, an investor opens a new margin account and buys 100 shares of XYZ at 22. What is the investor's initial margin requirement? A) 2200. B) 2000. C) 1100. D) 550.
B) 2000
A customer writes 1 Jul 40 put at 6. The put is exercised when the market price is 30. For tax purposes, what is the effective cost basis of the stock put to the writer of the contract? A) 46 B) 34 C) 30 D) 40
B) 34
When one of the partners in a partnership account dies, the registered representative (RR) must: Cancel any unexecuted orders. Freeze the account. Liquidate the account and hold all assets as cash until further instructions are received. Automatically re-title the account in the names of the remaining partners. A) I and III. B) I and II. C) II and III. D) II and IV.
B) I and II
Equity options that are in-the-money by what amount will be automatically exercised at expiration absence any other instructions from the customer? A) $1 B) $.10 C) $.01 D) $.05
C) $.01
A customer wishes to transfer his account positions to another broker/dealer. After validating the positions, the carrying broker/dealer is required to complete the transfer within how many business days? A) 5. B) 7. C) 3. D) 4.
C) 3. Under the Uniform Practice Code the carrying broker/dealer has 1 business day to validate positions and 3 business days to transfer to the receiving broker/dealer after validation. Reference: 5.1.4.3 in the License Exam Manual.
Regulations regarding who shall be offered coverage under a tax-qualified plan for employees falls under which ERISA requirement? A) Nondiscrimination. B) Funding. C) Reporting and disclosure. D) Vesting.
C) Reporting and disclosure.
I bonds are best characterized as being: A) Highly speculative and suitable for sophisticated investors only. B) Monthly providers of interest payments. C) Securities with a variable semi annually adjusted inflation rate based on changes in the CPI. D) Issued by municipalities.
C) Securities with a variable semi annually adjusted inflation rate based on changes in the CPI.
A trading desk wants to sell a block of corporate bonds. One characteristic that will have no affect on the marketability of those bonds is the: A) maturity. B) block size. C) bond denominations. D) rating.
C) bond denominations.
A registered representative (RR) at your broker/dealer has not completed the regulatory element component for their continuing education within the required time frame. This RR: A) may continue to accept unsolicited orders until the CE requirement is met. B) will need the written permission of a principal to continue functioning in the capacity of a registered representative. C) cannot function as a representative until the CE requirement is met. D) will receive a mandatory 90-day suspension.
C) cannot function as a representative until the CE requirement is met.
A customer purchases 300 XYZ at 35 and writes 3 XYZ Oct 35 calls at 3. The customer will profit under all of the following circumstances EXCEPT: A) if XYZ remains at 35 through expiration. B) if XYZ falls below 32 at expiration. C) if XYZ rises and the calls are exercised. D) if XYZ is between 32 and 35 at expiration.
C) if XYZ rises and the calls are exercised.
The discount rate is the rate that: A) major commercial banks charge their best corporate customers. B) major commercial banks charge broker/dealers for margin account loans. C) is charged by the Federal Reserve to a member bank for short-term loans. D) banks charge each other for overnight loans and is subject to daily change.
C) is charged by the Federal Reserve to a member bank for short-term loans.
A corporate offering of 1 million additional shares to existing shareholders is a: A) secondary offering. B) shelf offering. C) rights offering. D) tender offer.
C) rights offering.
An independently written securities industry newsletter addresses some relevant issues about one of the investment products offered by your firm. In order to forward this newsletter to all of your clients and prospects, you must disclose that: A) your purpose in forwarding the newsletter is to provide your clients with a choice of products that are suitable for all of their portfolios. B) the product the news letter discusses can be purchased at other broker/dealers as well as your firm. C) the newsletter has been written by a third party. D) other publications might offer different opinions about the product.
C) the newsletter has been written by a third party.
The owner of a variable annuity contract chooses a joint life with last survivor option. In choosing this option, the annuity payments: will continue as long as one of the annuitants is alive. will continue only as long as both annuitants are alive. will be smaller than if a life with period certain option had been chosen. will be guaranteed for a minimum 10-year-time period. A) II and III. B) II, III and IV. C) I and IV. D) I and III.
D) I and III.
A fund with a portfolio of stocks belonging to companies with patents pending or new products just coming to market is best described as a: A) Exchange traded fund. B) Index fund. C) Growth and Income fund. D) Special Situation fund.
D) Special Situation fund.
An issuer interested in reducing its interest cost can use the call provision to call in outstanding bond issues. The issuer is most likely to call bonds with a: A) low coupon and high call premium. B) high coupon and high call premium. C) low coupon and low call premium. D) high coupon and low call premium.
D) high coupon and low call premium.
All of the following characteristics are applicable to a repurchase agreement EXCEPT: A) an agreed to repurchase price. B) it is similar to a fully collateralized loan. C) an agreed to maturity date. D) it is used to raise long-term financing.
D) it is used to raise long-term financing.
A corporation's board of directors has declared a cash dividend of .12 per share. On which of the following dates will this dividend be considered a taxable event to shareholders? A) declaration date. B) record date. C) ex-date. D) payable date.
D) payable date.
The flow of funds statement found within a municipal trust indenture: relates to revenue bonds only. relates to both general obligation and revenue bonds. is found within the bond resolutions. is found within the official notice of sale. A) I and IV. B) II and IV. C) II and III. D) I and III.
I and III
They are equity securities All of the following are characteristics associated with equity-linked notes (ELNs) EXCEPT They can be exchange traded or traded OTC They have final payments at maturity linked to the return of an underlying stock or basket of stocks They are equity securities All ELNs offer principal protection
They are equity securities
A decrease in business activity and sales would most likely be associated with an increase in: building permits. personal income. plant and equipment expenditures. inventory levels.
inventory levels
The discount rate is the rate that: major commercial banks charge broker/dealers for margin account loans. major commercial banks charge their best corporate customers. is charged by the Federal Reserve to a member bank for short-term loans. banks charge each other for overnight loans and is subject to daily change.
is charged by the Federal Reserve to a member bank for short-term loans.
Which of the following is true regarding a "summary section" and a "statement of additional information" for management investment companies? A) A statement of additional information (SAI) need not be included in the prospectus of a management company. B) Neither are required to be in the prospectus of a mutual fund. C) Both must be included in the prospectus of a management company. D) A summary section need not be included in the prospectus of a mutual fund.
A) A statement of additional information (SAI) need not be included in the prospectus of a management company. A statement of additional information (SAI) need not be in a prospectus but available for both open and closed-end investment companies. It consists of information not necessarily needed to make an informed purchase decision but still useful to the investor. The SEC however mandates that "enhanced disclosure" in the form of a summary section be included in the prospectus of open-end investment companies (mutual funds). It must be written in plain language and the SEC mandates the order of, and the items to be addressed in the summary.
Mutual funds and variable annuity separate accounts share some features. What would two such features be? The customer assumes investment risk. Investment risk is assumed by the fund or insurer. The customer may vote for the investment manager of the fund or annuity. Both are traded in the secondary market. A) I and III. B) II and IV. C) I and IV. D) II and III.
A) I and III
Securities exempt from regulation under the Trust Indenture Act of 1939 include: Treasury bonds. secured corporate bonds. corporate debentures. municipal bonds. A) I and IV. B) II and III. C) I and III. D) II and IV.
A) I and IV.
An investor is seeking tax advantages through an oil and gas DPP. With this type of partnership, he would expect to benefit most from: depreciation allowances. depletion. tax credits. intangible drilling costs. A) II and III. B) II and IV. C) I and III. D) I and IV.
A) II and III.
The calculation of accrued interest for a corporate bond: A) includes interest from and including the last payment date. B) is not made when a bond trades "and interest". C) includes interest through the settlement date. D) is based on an actual day month.
A) includes interest from and including the last payment date.
Your broker/dealer is compiling a list of investments suitable for a qualified retirement plan. The list should not include: A) investment-grade municipal bonds. B) blue-chip common stocks. C) corporate bonds. D) Treasury bills.
A) investment-grade municipal bonds.
A customer enters a market order to buy 100 shares of XYZ. The broker/dealer reports the purchase price of 100 shares of XYZ at 27.50 to the customer; shortly after, it is determined that the actual price paid when the order was filled was 28. The customer A) must accept the trade at the price of 28 B) must accept the trade, with the price difference split between the firm and the customer C) is not required to accept the trade D) is only required to accept the trade at the price of 27.50
A) must accept the trade at the price of 28
As a registered representative you might be concerned that a customer was engaged in money laundering if you observed: the customer's lack of concern for risk, commissions, and other transaction costs. the customer entering orders for stocks that were not recommended by you. excessive journal entries between unrelated accounts. the customer entering orders for stocks that were not recommended by your firm. A) I and IV. B) I and III. C) II and IV. D) II and III.
B) I and III
A customer who invests in a Coverdell Education Savings Account on behalf of her 10-year-old daughter may: make before-tax contributions of $2,000 per year. receive tax-free distributions if funds are withdrawn for qualified educational expenses. make an investment into a Section 529 Plan in the same year for the same child. roll the accumulated funds into a traditional IRA for another family member if funds are not used by age 30. A) I and III. B) II and III. C) II and IV. D) I and II.
B) II and III. AFTER-TAX
A registered representative of a FINRA member firm intends to send a sales piece regarding municipal bonds to all of her existing retail clients numbering well over 100. Which of the following regarding the municipal sales piece is TRUE? A) Any piece regarding municipal bonds will automatically be deemed institutional communications by FINRA. B) MSRB rules require that the piece be approved by a principal and it will be regulated by FINRA as a retail communication. C) FINRA rules regarding communications with the public do not apply because the piece has to do specifically with municipal bonds. D) MSRB rules do not require that the piece be approved by a principal in any circumstance.
B) MSRB rules require that the piece be approved by a principal and it will be regulated by FINRA as a retail communication.
A corporation has undistributed earnings of $.25 per share. These earnings will: A) increase capital assets. B) increase retained earnings. C) decrease book value. D) increase earnings per share.
B) increase retained earnings. Retained earnings represent income that has not been paid out to shareholders.
Variable rate municipal bonds help protect investors from: A) liquidity risk. B) interest rate risk. C) legislative risk. D) default risk.
B) interest rate risk
XYZ Corp. has issued $30 million of debentures. Each bond issued has a warrant attached enabling the holder to buy 3 shares of XYZ common at $30 per share. If all of the warrants are exercised, XYZ Corp. will receive: A) $6.6 million. B) $19.8 million. C) $2.7 million. D) $9 million.
C) $2.7 million. $30 million / 1000 = 30,000 30,000 x 3 (shares) = $90,000 $90,000 x $30 / share = 2.7 million
A customer is likely to experience the greatest purchasing power risk with which of the following investments? A) Convertible preferred stock. B) Short-term Treasury note. C) A long-term AAA rated municipal bond. D) Combination fund.
C) A long-term AAA rated municipal bond. The longer a fixed-income investment is held, the more vulnerable the investor is to purchasing power risk from inflation. Although preferred stock is also a fixed-income investment, convertible preferred will increase in value with the underlying common stock.
Under SEC rules, which of the following events require a broker/dealer to furnish a copy of the account record to a customer? 1.The opening of a new account. 2.Change of customer's name or address. 3.Change of customer's investment objectives. 4.Change in customer's employment or financial status. A) I only B) II and III C) I, II, III and IV D) I and II
C) I, II, III and IV Any change in a customer's status that may impact the suitability of recommendations requires a broker/dealer to update customer account records. Reference: 5.1.1.3 in the License Exam Manual.
Which of the following descriptions applies to settlement of index option contracts? A) Buyers of calls and sellers of puts take delivery of underlying stock on settlement date. B) Settlement price is determined by the value of the index at the exact time of day the option is exercised. C) Index options are settled in cash when exercised. D) Exercise of index options settles in 3 business days
C) Index options are settled in cash when exercised.
A member of a $10 million Eastern account that has a $1 million participation fails to sell $400,000 of the bonds. If, at the close of the offering, $2 million remains unsold, the member must take down: A) $100,000 of the unsold bonds. B) $1 million of the unsold bonds. C) $400,000 of the unsold bonds. D) $200,000 of the unsold bonds.
D) $200,000 of the unsold bonds. Explanation: In an Eastern (undivided) account, the dealer is responsible for a proportionate amount of the bonds in the account. If the dealer sells all the bonds committed for, and there are bonds left unsold in the account, the dealer is liable for bonds based on his original commitment. In this example, the dealer is also responsible to sell 10% of the unsold bonds.
An appeal of an adverse Code of Procedure decision may be made by either party within: A) 25 days of the decision date. B) 10 days of the decision date. C) 30 days of the decision date. D) 45 days of the decision date.
D) 45 days of the decision date. Under the Code of Arbitration, a respondent has 45 days to respond to both the director and the claimant.
A customer writes 1 XYZ Feb 50 put at 1 and buys 1 XYZ Feb 60 put at 7. The breakeven point is: A) 44 B) 66 C) 56 D) 54
D) 54
If the placement ratio found within The Bond Buyer is high, then: the market for municipal bonds is strong. the market for municipal bonds is weak. dealers will be more likely to bid on new municipal issues. dealers will be less likely to bid on new municipal issues. A) II and IV. B) II and III. C) I and IV. D) I and III.
D) I and III. higher the ratio, the better the market
When a limited partnership interest is sold, gain or loss to the partner is determined by the difference between the sales proceeds and the: A) partner's share of tax preference items. B) original basis. C) total of deductible losses. D) adjusted cost basis.
D) adjusted cost basis. sales proceeds and adjusted basis at the time of sale. If, at the time of sale, the customer has unused losses, these losses may be added to the cost basis. The adjusted basis is a limited partner's cost basis at any point in time. Gain or loss on the sale of the partnership is determined by comparing the sales proceeds to the adjusted basis.
A new client who is self-employed and contributing to a Keogh plan expects to expand his employee staff in the near future. This client needs to know that when operating a Keogh plan, a self-employed individual must also make contributions for: A) part-time employees who have worked for 3 or more years. B) all employees scheduled to work for 1,000 hours per year or more. C) all employees. D) full-time employees who are at least 21 years old and have worked for 1 or more years
D) full-time employees who are at least 21 years old and have worked for 1 or more years
In accordance with the Investment Company Act of 1940, your customer who has recently purchased shares of a mutual fund should receive financial statements at least: A) annually. B) quarterly. C) monthly. D) semiannually.
D) semiannually
For a municipal revenue bond, the opinion rendered by the bond counsel would attest to: A) the credit rating of the issue. B) the economic feasibility of the issue. C) the marketability of the issue. D) the legality of the issue.
D) the legality of the issue. The issuer hires a firm or an individual to act on its behalf as bond counsel.
Which of the following statements may you correctly make in describing the benefits of a 403(b) plan to your customer who is a public schoolteacher? I."Your investment choices include fixed and variable annuities and mutual funds which can include stocks and bonds." II."The contributions you make to the plan will be made with after-tax dollars." III."Employees over age 45 may make catch-up contributions for years missed." IV."The contributions you make to the plan will be excluded from your gross income for the year in which they are made." I and IV I and III II and IV I and II
I and IV
To whom and how frequently must broker dealers report cost basis and sales proceeds? I. The IRS II. The IRS and customers III. each time a transaction occurs IV. annually II and IV I and IV I and III II and III
II and IV
The MSRB has no jurisdiction or authority to regulate: municipal bond registered representatives municipal bond broker/dealers municipal bond issuers municipal bond quotes
municipal bond issuers
