FINRA FINRA Certifications FINRA-SERIES-7 Questions & Answers

• Question 121:

  What type of mutual fund would invest in equities and bonds?

  A. dual purpose

  B. balanced

  C. technology

  D. growth

  Correct Answer: B

  balanced. These funds invest for growth with stock and income with bonds.

• Question 122:

  Initial margin deposit minimum requirements are set by the:

  A. NYSE

  B. FINRA

  C. FRB

  D. FDIC

  Correct Answer: C

  FRB. The Federal Reserve Board sets the initial margin deposit requirements. The NYSE set the ongoing minimum equity requirements.

• Question 123:

  A corporation makes a rights offering to raise $10 million of new capital by issuing one million shares of common stock. If it already has six million shares outstanding at the time of the offering. What subscription ratio is the corporation establishing for each new share?

  A. 6 rights per share

  B. 10 rights per share

  C. 6 million rights per share

  D. 10 million rights per share

  Correct Answer: A

  6 rights per share. Each share receives a right and there are six million shares receiving rights to one million new shares. So six rights are required for one share.

• Question 124:

  The term "secondary market" refers to:

  A. trading in issues of low quality

  B. trading in outstanding issues

  C. issues that banks are not permitted to underwrite

  D. private placements

  Correct Answer: B

  trading in outstanding issues. Secondary market transactions involve trading in securities after the original issue is made. When an issuer offers new securities to the public it is a "primary offering".

• Question 125:

  For a self-employed individual's retirement plan, ERISA permits an investment in which of the following?

  A. a unit investment trust

  B. a variable annuity

  C. a US Treasury bond

  D. all of the above

  Correct Answer: D

  all of the above. Each of these investments qualify for a retirement plan or an IRA.

• Question 126:

  With respect to the public offering of securities by an underwriting syndicate, which of the following is true?

  A. the underwriting spread is greater than the selling concession

  B. the reallowance is greater than the selling concession

  C. the selling concession is greater than the underwriting spread

  D. the reallowance is greater than the underwriting spread

  Correct Answer: A

  the underwriting spread is greater than the selling concession. The underwriting spread (or "gross spread") is the difference between the price paid to the issuer and the public offering price. The selling concession is the amount that the managing underwriter gives to dealers in the selling group. The reallowance is the amount that underwriters give to other dealers and is less than the selling concession.

• Question 127:

  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

  Correct Answer: A

  $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.

• Question 128:

  What percentage of maintenance charges and debt service are covered by the rate covenant of a revenue bond issued to finance a municipal toll road?

  A. 75%

  B. 100%

  C. 120%

  D. 150%

  Correct Answer: C

  120%. The toll facility usually sets rates to cover 120% of maintenance and debt service.

• Question 129:

  The definition of debentures is:

  A. a loan secured by real estate

  B. collateralized securities

  C. a worthless security

  D. securities backed by the general credit of the issuers but no specific collateral

  Correct Answer: D

  securities backed by the general credit of the issuers but no specific collateral. And in the case of some issuers, that may be fairly worthless.

• Question 130:

  When an index option is exercised, settlement is made by:

  A. delivery of the underlying securities

  B. delivery of a futures contract

  C. cash

  D. any of the above

  Correct Answer: C

  cash. Index options are settled by payment of cash.