FINRA FINRA Certifications FINRA-SERIES-7 Questions & Answers

• Question 91:

  What is the loan value on a call option held in a customer's margin account?

  A. 0

  B. 50%

  C. 30%

  D. the compliment of the FRB initial margin requirement for listed stocks

  Correct Answer: A

  0. Options do not have loan value, except for long-term LEAPS.

• Question 92:

  The total assets of a corporation are $840,000, of which $350,000 are current items. Total liabilities are $460,000, of which $290,00 are fixed obligations. How much is the corporation's working capital?

  A. $60,000

  B. $110,000

  C. $180,000

  D. $380,000

  Correct Answer: C

  $180,000. Subtract current liabilities from current assets. Current liabilities are $170,000 ($460,000 - $290,000).

• Question 93:

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

  A. 30,000

  B. 21,000

  C. 9.000

  D. as many as it can up to a maximum of 51,000

  Correct Answer: B

  21,000. The underwriter is permitted to retain 70% of the 30,000 shares. The remaining 9,000 shares are kept in the pot by the manager.

• Question 94:

  What is the name for the rate of discount from the list price that is paid to a municipal securities underwriting group member for its sales participation?

  A. commission

  B. concession

  C. spread

  D. takedown

  Correct Answer: D

  takedown. The takedown is an additional allowance on bonds sold by a member.

• Question 95:

  A company earns $6 per share and pays out 20% in common stock dividends. What does the stock yield if it sells at $30 per share?

  A. 10%

  B. 4%

  C. 2.5%

  D. 6%

  Correct Answer: B

  4%. The dividend is $1.20 per share ($6 x 20%). Divide this by the stock price to obtain the yield.

• Question 96:

  In a competitive bidding for mortgage bonds of a large public utility the winning underwriter is determined by:

  A. the highest dollar amount paid to the issuer

  B. the lowest net interest cost to the issuer

  C. the shortest maturity date for the bonds

  D. the refunding and sinking fund terms in the indenture

  Correct Answer: B

  the lowest net interest cost to the issuer. All competitive bids are based upon the lowest interest cost.

• Question 97:

  In a securities underwriting a participating firm is said to be liable severally but not jointly. What is this type of underwriting is called?

  A. a Western account

  B. an Eastern account

  C. a best efforts offering

  D. an all or none offering

  Correct Answer: A

  a Western account. In a Western account each underwriter has a divided liability and is responsible only for his portion of the issue. In Eastern accounts, generally used for municipal issues, the underwriter is responsible for a percentage of

  any unsold portion.

  This is called an undivided liability.

• Question 98:

  Bubba and his wife, Bubbette, maintain a joint account with a brokerage firm as "joint tenants in common". Bubbette calls a registered representative at the brokerage and places an order to sell 100 shares of XYZ, which is long in the

  account.

  Which of the following statements is correct about this order?

  A. it may be entered

  B. it may be entered only after confirming with Bubba

  C. it must be approved by an officer of the brokerage prior to entry

  D. the order may not be accepted

  Correct Answer: A

  it may be entered. In a joint account any tenant is empowered to enter orders, which is specified in the account agreement.

• Question 99:

  Which of the following is not a practice of a mutual fund custodian?

  A. changing shareholder registrations on the fund's records

  B. disbursing dividends and capital gains to the fund's shareholders

  C. lending the fund's securities to banks or broker/dealers

  D. maintaining sales records for the fund's underwriter

  Correct Answer: C

  lending the fund's securities to banks or broker/dealers. This practice is not permitted under federal law.

• Question 100:

  Partnership democracy is:

  A. a prohibition against control by a single partner

  B. the sharing of management by all partners

  C. permission granted to the general partner to act outside the partnership agreement

  D. a synonym for silent partner

  Correct Answer: C

  permission granted to the general partner to act outside the partnership agreement. The limited partners may approve of the general partner pursuing an act that is contrary to the partnership agreement.