FINRA FINRA Certifications FINRA-SERIES-7 Questions & Answers

• Question 101:

  Under the Investment Company Act of 1940, what is the minimum net worth of a registered investment company?

  A. $100,000

  B. $50,000

  C. $25,000

  D. $5,000

  Correct Answer: A

  $100,000. This was a considerable amount of money in 1940.

• Question 102:

  Which of the following forms of underwriting is least likely for an offering of municipal bonds?

  A. negotiated

  B. competitive bid

  C. firm commitment

  D. best efforts

  Correct Answer: D

  best efforts. A best efforts deal least likely for a municipal securities offering. It is most often associated with small corporate stock or limited partnership offerings. Municipal securities are usually competitive bid or negotiated. Both of these types are firm commitment.

• Question 103:

  Under Rule 415 a corporation may file a single registration statement with the SEC covering its anticipated financing need for the next:

  A. one year

  B. two years

  C. three years

  D. five years

  Correct Answer: B

  two years. The corporation can offer these securities in whole or in part for the ensuing two years.

• Question 104:

  Bubba wants to buy a $4 convertible preferred with that has a $50 par value and is exchangeable for common stock at $47.50. If the preferred stock is trading at 52, what does Bubba calculate as the common stock price in order to be at parity with the preferred?

  A. 47.50

  B. 52.00

  C. a little less than 49.38

  D. a little more than 54.50

  Correct Answer: C

  a little less than 49.38. Bubba needs a calculator to divide the par value of the preferred stock by the price of the common stock. He then divides the result into the price at which the preferred stock is trading.50 divided by 47.50 = 1.05352 divided by 1.053 = 49.38.

• Question 105:

  Regulation T is set at 50%. Bubba's account contains long positions in the following securities with the prices listed: 100 ABC $30 200 XYZ $70 200 QBB $40 200 KKK $25 Total market value = $30,000 Debit balance in the account = $12,000 Net equity balance of the account = $18,000 Bubba wants to buy 100 shares of DUM at $30 per share and 100 shares of OUT at $120.

  How much how much value of additional securities must Bubba deposit in lieu of depositing cash?

  A. $3,000

  B. $6,000

  C. $9,000

  D. $15,000

  Correct Answer: C

  $9,000. Since the required cash to deposit is $4,500 and Reg T is 50%, Bubba may deposit $9,000 of securities.

• Question 106:

  An "accumulation unit" of a variable annuity is used to determine which of the following?

  A. the value of the annuitant's contract before annuity payments begin

  B. the amount of annuity payments to be paid to the owner

  C. the amount to be passed to the annuitant's beneficiary

  D. the amount returned to the annuitant upon redemption of the account

  Correct Answer: A

  the value of the annuitant's contract before annuity payments begin. Accumulation units determine contract value. Payout are determined by annuity units.

• Question 107:

  Bubba's margin account has $2,000 of SMA. If he buys $10,000 of new securities, how much additional cash must he deposit assuming a Reg T requirement of 50%?

  A. $3,000

  B. $4,800

  C. $5,000

  D. $6,000

  Correct Answer: A

  $3,000. The purchase requires $5,000 ($10,000 x 50%). Since the existing SMA is $2,000 Bubba only needs to deposit the remaining $3,000.

• Question 108:

  In June, Bubba bought 100 shares of XYZ at $35. In November, he bought a listed put in XYZ with a $35 strike price and a July expiration for a premium of $600. If the option expires without being exercised, how is the premium expense treated by Bubba?

  A. as a $600 capital loss

  B. as a $600 capital gain

  C. $600 is added to his acquisition cost for the stock

  D. $600 is held in abeyance until the stock is eventually sold

  Correct Answer: A

  a $600 capital loss. The amount of premium paid is the cost and the recovery is zero, resulting in a $600 capital loss.

• Question 109:

  What is represented by the net investment income of an open-end investment company?

  A. net profits from the investment company operation

  B. net gains on sales of portfolio securities

  C. dividends, interest, and net gains on sales of securities

  D. net income from dividend and interest paid on securities in the fund portfolio

  Correct Answer: D

  net income from dividend and interest paid on securities in the fund portfolio. This is the definition of net investment income, which excludes gains on sales of securities.

• Question 110:

  Which of the following preferred issues is likely to fluctuate most in value?

  A. cumulative preferred

  B. callable preferred

  C. convertible preferred

  D. broker preferred

  Correct Answer: C

  convertible preferred. Because of the conversion feature, convertibles are more closely linked to the price of the common stock. In addition, since the dividend rate on convertible preferred is usually lower than other preferred issues, the convertibles are more sensitive to interest rate fluctuations.