FINRA FINRA-SERIES-7 Online Practice Questions and Exam Preparation

FINRA FINRA-SERIES-7 Online Questions & Answers

• Question 101:

  Bubba buys a 5% municipal bond maturing in 15 years that is trading at a market price of 85. What is the yield to maturity using the "rule of thumb" method?

  A. 5.00%
  B. 5.88%
  C. 5.10%
  D. 6.49%
  D. 6.49%

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  Explanation/Reference:

  6.49%. Divide the discount from par value of $150 ($1,000 - $850) by the number of years to maturity (15) to determine the annual discount. Add the result of $10 to the annual interest ($50) to determine the total annual return. Divide the result of $60 by the average of the current price (85) and par (100). The result is 60 divided by 92.5, which equals 6.49%.

• Question 102:

  A registered representative is given a limited trading authorization by a client. This permits the representative to:

  A. withdraw money from the account
  B. enter orders for the account at the representative's discretion
  C. withdraw securities from the account
  D. all of the above
  B. enter orders for the account at the representative's discretion

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  Explanation/Reference:

  enter orders for the account at the representative's discretion. A limited trading authorization only allows for entering of orders. A full trading authorization would also permit withdrawals from the account.

• Question 103:

  Bubba buys a ten-year municipal and at 102 and sells it five years later at 101. What is tax treatment?

  A. a $10 long-term capital loss is realized
  B. the $10 loss is applied as a reduction against ordinary income
  C. no capital loss or income deduction is realized
  D. the $10 loss is applied against future profits in municipal securities
  C. no capital loss or income deduction is realized

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  Explanation/Reference:

  no capital loss or income deduction is realized. The $20 premium is amortized over the ten-year life of the bond. After five years, half of the premium has been written down. The remaining premium is the same as the premium received upon selling the bond. The sale at 101 results in no loss or gain.

• Question 104:

  The net investment income of an open-end investment company represents:

  A. net income from dividends and interest paid on securities in the fund's portfolio
  B. net gains on sales of portfolio securities
  C. dividends, interest, and net gains on sales of securities
  D. net profits from the investment company operation
  A. net income from dividends and interest paid on securities in the fund's portfolio

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  Explanation/Reference:

  net income from dividends and interest paid on securities in the fund's portfolio. Net investment income is dividends and interest but not capital gains.

• Question 105:

  A large manufacturing company has current assets of approximately $9,400,000 and current liabilities of about $4,900,000. Which of the following statements is true about the current ratio?

  A. it is substantially below the standard minimum
  B. it is somewhat below the standard minimum
  C. it is about the standard minimum
  D. it is somewhat above the standard minimum
  B. it is somewhat below the standard minimum

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  Explanation/Reference:

  it is somewhat below the standard minimum. The standard minimum current ratio for a manufacturing company is 2 to 1. The current ratio for this company is 1.92 (9,400,000 divided by 4,900,000).

• Question 106:

  A mutual fund custodian is paid according to which of the following specifications when receiving deposits from a shareholder's reinvestment plan?

  A. a commission for each share purchased
  B. a percentage of the sales charge
  C. a processing fee
  D. a percentage of the fund's net asset value
  C. a processing fee

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  Explanation/Reference:

  a processing fee. Many custodian banks charge the custodian fee to the mutual fund rather than the individual shareholder.

• Question 107:

  A buy-in of a customer's sale transaction is mandated if the securities have not been received by the broker/ dealer within how many business days following the settlement date:

  A. 5
  B. 10
  C. 20
  D. 30
  B. 10

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  Explanation/Reference:

  10. If a customer fails to deliver securities within ten days after settlement, the broker must repurchase the securities.

• Question 108:

  Service charges by a FINRA dealer for transfer and safekeeping of customer securities held in street name:

  A. may not be levied under FINRA Conduct Rules
  B. may not be levied unless there is no trading in the account for more than six months
  C. may be levied only if the security has a value of less than $5,000
  D. may be levied only if the charge if fair, reasonable, and non-discriminatory
  D. may be levied only if the charge if fair, reasonable, and non-discriminatory

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  Explanation/Reference:

  may be levied only if the charge if fair, reasonable, and non-discriminatory. This is the standard in the FINRA rules.

• Question 109:

  Which of the following is not a marketable security?

  A. tax anticipation bonds
  B. municipal bonds
  C. treasury bonds
  D. Series EE bonds
  D. Series EE bonds

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  Explanation/Reference:

  Series EE bonds. All the other securities may be traded. Series EE bonds are purchased and held to maturity. They are not tradable.

• Question 110:

  Bubba buys one XYZ November 65 call at $3 and one XYZ November 65 put at $2. XYZ is trading at $72. The put expires and the call is closed at its intrinsic value. What is the resulting profit?

  A. $200
  B. $300
  C. $500
  D. $700
  A. $200

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  Explanation/Reference:

  $200. Since XYZ is trading at 72, a November 65 call has an intrinsic value of $700. A sale at that value compared to the cost of $300 is a profit of $400. Subtract the loss of $200 on the expired put to obtain the profit of $200.