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

FINRA FINRA-SERIES-7 Online Questions & Answers

• Question 191:

  The market theory stating that the small investor is usually wrong is called the:

  A. advance-decline theory
  B. odd-lot theory
  C. Dow theory
  D. short interest theory
  B. odd-lot theory

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  Explanation/Reference:

  The market theory stating that the small investor is usually wrong is called the odd-lot theory. The concept behind this theory is that when small lot sales are high, it is a good time to buy, as a high ratio of small business sales is a contrary indicator of market direction.

• Question 192:

  An issuer is most likely to request an investment letter from the purchaser in connection with which of the offerings?

  A. a hot issue
  B. a mutual fund
  C. a private placement
  D. an exempt security
  C. a private placement

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  Explanation/Reference:

  a private placement. Normally, private placements are conducted with an investment letter.

• Question 193:

  Which of the following statements regarding mutual funds is true?

  A. the custodian can also be the transfer agent
  B. the sponsor receives a management fee based on the fund's total assets
  C. the terms "management company" and "investment advisor" are interchangeable
  D. the management company receives a portion of the sales load for managing the fund assets
  A. the custodian can also be the transfer agent

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  Explanation/Reference:

  the custodian can also be the transfer agent. This has become increasingly common. None of the other choices are correct.

• Question 194:

  Which of the following is associated with an income oil and gas partnership?

  A. capital appreciation
  B. the risk of dry holes
  C. high intangible drilling costs
  D. cash flow and depletion allowance
  D. cash flow and depletion allowance

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  Explanation/Reference:

  cash flow and depletion allowance. The other choices are not applicable because an "income" partnership already has a producing well.

• Question 195:

  What is the importance of the "at risk" rule?

  A. it limits deductions to the amount at risk
  B. it limits liability to the amount at risk
  C. deductions for interest may not exceed investment income
  D. it prevents carry forward of disallowed interest deductions
  A. it limits deductions to the amount at risk

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  Explanation/Reference:

  it limits deductions to the amount at risk. Deductions may not exceed contributed capital.

• Question 196:

  Book value of a corporation is also known as:

  A. net tangible asset value per share
  B. intangible value
  C. par value
  D. dilution value
  A. net tangible asset value per share

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  Explanation/Reference:

  net tangible asset value per share. Book value is much easier to say.

• Question 197:

  Which of the following does not issue debt securities that trade in the open market?

  A. Fannie Mae
  B. Freddie Mac
  C. Federal Reserve Banks
  D. Federal Land Banks
  C. Federal Reserve Banks

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  Explanation/Reference:

  Federal Reserve Banks. Debt securities are not issued by Federal Reserve Banks. All of the other entities do issue debt securities.

• Question 198:

  In mid-September, Bubba sells one XYZ February 50 call at $6. It subsequently expires without being exercised. How is the premium taxed?

  A. Bubba's cost of the underlying stock is reduced
  B. the $600 premium is a capital gain
  C. the $600 premium constitutes ordinary income
  D. the $600 premium is rolled over into another XYZ call with the next longest expiration date
  B. the $600 premium is a capital gain

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  Explanation/Reference:

  the $600 premium is capital gain. That's simply how the tax law works.

• Question 199:

  When a corporation issues a nonconvertible debenture, what is the effect upon its net worth?

  A. it increases
  B. if decreases
  C. if is unchanged
  D. none of the above
  C. if is unchanged

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  Explanation/Reference:

  it is unchanged. The debentures add to liabilities and to cash (an asset) received from the sale. There is no effect on net worth.

• Question 200:

  The net asset value of a mutual fund was $9.72 last month. This month it is calculated at $9.85. What is the change in value called?

  A. yield
  B. asset revaluation
  C. appreciation
  D. capital gain
  C. appreciation

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  Explanation/Reference:

  appreciation. That's the correct term for increase in value.