FINRA FINRA Certifications FINRA-SERIES-7 Questions & Answers

• Question 111:

  Which of the following is the least important method of money control exercised by the Federal Reserve?

  A. reserve requirements

  B. open market operations

  C. discount rate

  D. Regulation T

  Correct Answer: D

  Regulation T. Because this regulates brokers extending credit to customers, it is important to the securities industry but does not have an extensive effect on the general economy.

• Question 112:

  Who is responsible for verifying that limited partners meet net worth and income requirements?

  A. the limited partners

  B. the general partner

  C. the sponsor

  D. the registered representative

  Correct Answer: D

  the registered representative. Assuring that limited partners meet net wroth and income requirements is the responsibility of the registered representative.

• Question 113:

  Mutual fund salespersons may not represent that a product is like of safer than:

  A. an insurance policy

  B. a fixed annuity

  C. a corporate debt instrument

  D. all of the above

  Correct Answer: D

  all of the above. A broker/dealer must demonstrate that what is said or printed about a product is not fraudulent. Representing a mutual fund as safer than any of the choices above is likely fraudulent.

• Question 114:

  A mutual fund letter of intent may permissibly be predated for a period of time up to: A. 5 business days

  B. 10 business days

  C. 90 calendar days

  D. 13 months

  Correct Answer: C

  90 calendar days. An investor has 90 days from the date of original purchase to sign a letter of intent. The maximum duration for the letter is 13 months from the initial purchase.

• Question 115:

  Which of the following types of investment companies pays out 90% of its net investment income to shareholders?

  A. diversified

  B. registered

  C. regulated

  D. balanced

  Correct Answer: C

  regulated. Investment companies regulated by the Internal Revenue Code Subchapter M are required to pay out a minimum of 90% of their net income annually to their shareholders.

• Question 116:

  Upon opening a new account for a customer, a registered representative should:

  A. inquire about age

  B. investigate the customer's credit rating

  C. determine what is suitable for the customer based upon his financial background

  D. all of the above

  Correct Answer: D

  all of the above. These are required I Rule 405 of the NYSE and under suitability requirements in the Rules of Fair Practice of the FINRA.

• Question 117:

  An employer profit sharing plan may be described as:

  A. an income tax deduction

  B. a retirement plan

  C. a tax deferral plan

  D. all of the above

  Correct Answer: D

  all of the above. A profit sharing plan has tax deductible contributions and is designed to provide a retirement plan for participants. Income in the plan is tax-free until withdrawn.

• Question 118:

  A tax-free rollover of assets between qualified retirement plans for the benefit of a specific individual is permitted so long as it is accomplished within:

  A. 30 days

  B. 60 days

  C. 90 days

  D. one year

  Correct Answer: B

  60 days. ERISA permits 60 days for rollovers.

• Question 119:

  Which of the following is not true about US treasury bills?

  A. they are issued at a discount

  B. they are money market instruments

  C. they are issued in denominations of $1,000 to $1,000,000

  D. they are general obligations of the US government

  Correct Answer: C

  they are issued in denominations of $1,000 to $1,000,000. Remember, the question asks what is "not" true. The smallest denomination for a US treasury bill is $10,000.

• Question 120:

  Bubba is age 54 and has investments in a retirement plan with his former employer valued at $104,500. Bubba withdraws $25,000 to open a retail clothing store. Which of the following statements is true regarding Bubba's tax consequences?

  A. the entire account is terminated and $104,500 is immediately taxable

  B. a penalty of 10% of the withdrawn amount is assessed

  C. a penalty of 10% on all assets in Bubba's account is assessed

  D. only regular income tax is due on the amount withdrawn

  Correct Answer: B

  a penalty of 10% of the withdrawn is assessed. Bubba also owes regular income tax on the withdrawn amount in addition to the 10% penalty for early withdrawal.