FINRA FINRA Certifications FINRA-SERIES-7 Questions & Answers

• Question 141:

  Which of the following pairs of terms are synonyms in connection with most mutual funds?

  A. net asset value and offering price

  B. selling price and bid price

  C. net asset value and redemption price

  D. bid price and management fee

  Correct Answer: C

  net asset value and redemption price. Investors redeeming shares of mutual funds receive the net asset value.

• Question 142:

  A provision under which an underwriter can cancel a proposed public offering due to some unforeseen occurrence is known as a:

  A. blue sky provision

  B. contra-market clause

  C. fill or kill provision

  D. market-out clause

  Correct Answer: D

  market-out clause. This is used only in the case of some unusual occurrence.

• Question 143:

  The public offering price of the securities of an open-end management investment company is:

  A. determined by a method set forth in the prospectus of the issuer

  B. based upon net asset value of the securities underlying the shares of the issuer plus a 10 % sales charge

  C. determined by the relative demand for the shares of the issuer

  D. the price used by distributors in determining sales incentive discounts to individual purchasers

  Correct Answer: A

  determined by a method set forth in the prospectus of the issuer. The method is described in the prospectus. It uses the net asset value plus any sales charge

• Question 144:

  Big Guns Municipal Bond Dealer Corporation buys 100M of 7% 20-year GO bonds at par. The bonds are marked up and immediately re-offered for sale. Which of the following re-offering prices would probably be deemed excessive?

  A. 6.8% net

  B. 6.9% less 0.5

  C. $100.75

  D. 5.00% net

  Correct Answer: D

  5.00% net. The other quotes indicate moderate markups over cost. A quote of 5% net indicates a large markup and a price not "reasonably related to the market". The dollar price would be about $125, a 25% markup over the dealer's cost.

• Question 145:

  Which of the following statements about the custodian for an open-end mutual fund is correct?

  A. the custodian performs all management, supervisory, or investment functions

  B. the custodian may perform an essential clerical service for the fund and its shareholders

  C. the custodian takes part in the sale of fund shares

  D. the custodian affords protection against decline in value of fund shares

  Correct Answer: B

  the custodian may perform an essential clerical service for the fund and its shareholders. The custodian holds the cash and securities of the investment company and performs the bookkeeping functions. It does not have a supervisory role.

• Question 146:

  Which of the following rights does an ADR holder not have?

  A. preemptive rights

  B. the right to vote for your mother-in-law as a board member

  C. the right to transfer ownership

  D. the right to see financial statements

  Correct Answer: A

  preemptive rights. Holders of ADRs do not have preemptive rights, although they have most other rights of shareholders, including the right to vote for board members-even a mother-in-law

• Question 147:

  Under a leaseback arrangement used to finance construction of local schools, who is the issuer of the municipal bonds?

  A. the state in which the schools are located

  B. the local school district

  C. a legal authority created for this purpose

  D. a public housing authority commissioned by the federal government

  Correct Answer: C

  a legal authority created for this purpose. Bonds with a leaseback arrangement are issued by a specially created entity.

• Question 148:

  Big Easy Investment Banking, Inc., participates in a Western account underwriting of $10 million of municipal bonds by agreeing to underwrite 10% of the issue. One week later, $4 million remains unsold but Big Easy has distributed $1.5

  million of bonds.

  What is the liability of Big Easy remaining in the account?

  A. $0

  B. $400,000

  C. $600,000

  D. $1,000,000

  Correct Answer: D

  $1,000,000. In a Western account, each underwriter has divided liability and each is responsibility only for his respective part. In this case, Big Easy is responsible for 10% of $10,000,000 - or $1,000,000.

• Question 149:

  Which of the following persons would consider annual reports of a corporation as the most important factor in making investment decisions?

  A. a technical analyst

  B. a chartist

  C. a follower of the Dow theory

  D. a fundamental analyst

  Correct Answer: D

  a fundamental analyst. These analysts are guided by computations about a company's performance using data in annual reports.

• Question 150:

  Bubba Corporation issued bonds that pay interest on January 15 and July 15 each year until maturity. An investor purchasing these bonds on Monday, April 12, must pay the contract price plus accrued interest for: A. 87 days

  B. 89 days

  C. 93 days

  D. 90 days

  Correct Answer: D

  90 days. Interest accrues from the coupon date to the settlement date. A regular way purchase on April 12 will settle on April 15. corporate bonds are figures on 30-day months, regardless of the actual number of days in the month. The year is considered 360 days. Therefore, interest is calculated for 16 days in January plus 30 each for February and March plus 14 for April.