FINRA FINRA Certifications FINRA-SERIES-7 Questions & Answers

• Question 201:

  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

  Correct Answer: D

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

• Question 202:

  In stabilizing a new issue, the manager may make a "syndicate penalty bid". This means that:

  A. the underwriter will be penalized his profit on any securities repurchased from his clients

  B. all stock purchased will be returned to the issuing corporation

  C. the manager will charge the syndicate the value of the shares

  D. any shares repurchased are added to the treasury stock of the issuing corporation

  Correct Answer: A

  the underwriter will be penalized his profit on any securities repurchased from his clients. Since clients sell shares back to the syndicate shortly after the offering, the underwriter has not made a proper distribution. The underwriter therefore may be penalized any profit.

• Question 203:

  Under Regulation T, when must money be deposited to cover requirements for Bubba's new purchases on margin?

  A. no later than the fifth business day after the trades

  B. no later than the seventh business day after the trades

  C. on the day of the trades

  D. on the next business day following the trades

  Correct Answer: A

  no later than the fifth business day after the trades. Bubba should pay up no later than the fifth business day.

• Question 204:

  If recaptured deductions are added to income, recaptured investment tax credits are added to:

  A. income

  B. basis

  C. gains

  D. taxes

  Correct Answer: D

  taxes. Tax credits are not deductible expenses and have no effect on basis.

• Question 205:

  An investment company incapable of issuing a long-term debt instrument is:

  A. a face-amount certificate company

  B. a unit investment trust

  C. a closed-end investment company

  D. an open-end investment company

  Correct Answer: D

  an open-end investment company. By definition, open-end funds may not issue senior securities. They only issue "voting stock".

• Question 206:

  If a customer fails to pay for securities purchased in a cash account, the member firm broker will do which of the following?

  A. grant an extension for a bona fide reason

  B. place the securities temporarily in a general account

  C. purchase the securities for the firm's error account

  D. liquidate the securities or otherwise cancel the transaction

  Correct Answer: D

  liquidate the securities or otherwise cancel the transaction. Reg T requires the position closed if the customer fails to comply with the rules. An extension may be granted, but not by the member firm. Only an exchange or the FINRA grants extensions for bona fide reasons.

• Question 207:

  Bubba maintains an individual cash account as well as a joint account with his wife, Bubbette. While Bubba is out of town on a fishing trip, Bubbette calls the brokerage firm with an order to buy 100 shares of Great Company, Inc., at the

  market value for Bubba individual account. It is a stock Bubba has previously informed the brokerage he wanted to buy at the "right price".

  What does the brokerage do?

  A. refuse to accept the order unless Bubba has provided a signed trading authorization in favor of Bubbette

  B. execute the order as requested

  C. enter the order only after receipt of written instructions to do so from Bubba

  D. buy the stock in the joint account and, after verification from Bubba, journal the security to his individual account

  Correct Answer: A

  refuse to accept the order unless Bubba has provided a signed trading authorization in favor of Bubbette. Unless Bubbette has been given written trading authorization over Bubba's account, trading orders cannot be accepted from her or any other person.

• Question 208:

  Bubba sells 100 shares of XYZ short at $58 and buys 1 XYZ Mar 60 Call at $3. What is the customer's maximum loss?

  A. $500

  B. $100

  C. unlimited

  D. $5,500

  Correct Answer: A

  $500. Bubba sold short at $58. The call with a strike price of 60, gives him the right to buy back the stock at $60. If the stock rises, the call can be used to limit the loss to 2 points. Bubba can lose $200 on the stock. Bubba also paid a $300 premium. Loss potential is $500.

• Question 209:

  To qualify as an intrastate offering under SEC Rule 147, which of the following is true of the issue?

  A. it must be approved by the SEC

  B. it must be sold only to bona fide residents of one state

  C. it cannot exceed $1,500,000 in value

  D. it must consist of common stock only

  Correct Answer: B

  it must be sold only to bona fide residents of one state. Under Rule 147 intrastate offerings are sold only to residents of one state and cannot be sold outside that state for nine months. All the other choices are incorrect about the rule.

• Question 210:

  Although a corporation has no earnings in a particular year, it is obligated to pay interest on all its outstanding debt except the following:

  A. convertible subordinated debentures

  B. collateral trust bonds

  C. adjustment bonds

  D. equipment trust certificates

  Correct Answer: C

  adjustment bonds. These bonds are also known as income bonds. Interest is paid only if there is income.