FINRA FINRA Certifications FINRA-SERIES-7 Questions & Answers

• Question 221:

  Which of the following is not in the subscription agreement for a limited partnership offering?

  A. identification of the limited partners

  B. qualification of the limited partners for the subscription

  C. granting of power of attorney to the limited partners

  D. a record of sales of the partnership interests

  Correct Answer: C

  granting of power of attorney to the limited partners. The other three choices are in the subscription agreement. Power of attorney is granted to the general partner, not the limited partners.

• Question 222:

  A leveraged company is best described as one that has a small portion of its capitalization represented by:

  A. common stock

  B. preferred stock

  C. debentures

  D. convertible bonds

  Correct Answer: A

  common stock. Leverage refers to the existence of securities that are senior to common stock. There can be debt leverage and equity leverage.

• Question 223:

  Bubba buys one XYZ October 80 put and sells one XYZ October 70 put. What is his position called?

  A. calendar spread

  B. money spread

  C. straddle

  D. combination

  Correct Answer: B

  money spread. Since the strike prices are different, but not the expiration date, this is a money spread (sometimes called a "price spread" or a "vertical spread").

• Question 224:

  A group net order is one that benefits municipal syndicate members:

  A. equally

  B. according to their percentage participation in the account

  C. according to the number of designated orders they've received

  D. according to the number of presale orders they've received

  Correct Answer: B

  according to their percentage participation in the account. For example, if the group net order produces $3,000 in fees and a syndicate member has a 10% overall participation, that member receives $300 in fees.

• Question 225:

  Bubba is buying a Federal Home Loan Bank issue that is offered at 95.22. How much will he pay to purchase one bond?

  A. $95.22

  B. $951.63

  C. $952.20

  D. $956.88

  Correct Answer: D

  $956.88. The price of 95.22 means 95 and 22 / 32. One thirty-second of a $1,000 bond with a par of 100.00 is $0.3125. Twenty-two thirty-seconds is therefore about $6.88. The 95 is the percentage of one bond with a par value of $1,000. Multiplying 95% by $1,000 equals $950. Adding $6.88 plus $950 equals $956.88.

• Question 226:

  Registration of open-end investment company shares with the SEC implies that the:

  A. shares have investment merit

  B. SEC approves the issue

  C. SEC guarantees the accuracy of the disclosures in the registration statement

  D. prospectus contains the significant facts about the issue

  Correct Answer: D

  prospectus contains the significant facts about the issue. The SEC never approves of guarantees an issue. It only attempts to verify that sufficient information is disclosed in the prospectus.

• Question 227:

  Which of the following best describes depreciation?

  A. a tax credit available to investors in heavy equipment

  B. deductions from gross income to offset lower value of equipment

  C. return of principal from real estate investments

  D. capitalized and amortized maintenance costs

  Correct Answer: B

  deductions from gross income to offset lower value of equipment. The cost of equipment is deducted from gross income over the life of the equipment, as its value declines.

• Question 228:

  Which of the following situations is possible for a writer of a covered call option?

  A. buying the underlying stock if the call is exercised

  B. depositing margin into his account

  C. purchasing a put option to hedge against unlimited loss potential

  D. selling the security, he already owns

  Correct Answer: D

  selling the security he already owns. A "covered" call is written on stock already owned.

• Question 229:

  When opening a brokerage account for a customer, a registered representative must determine the customer's:

  A. investment objectives

  B. financial resources

  C. financial requirements

  D. all of the above

  Correct Answer: D

  all of the above. All of the choices are required information for the registered representative to obtain.

• Question 230:

  Bubba buys a bond issued at par with a 5% coupon that is convertible into common stock at $40. The bond increases in value by 20 points. What is the conversion parity of the stock?

  A. $25

  B. $40

  C. $48

  D. $50

  Correct Answer: C

  $48. A 20-point increase results in a bond value of $1,200. Divide that by the conversion ratio of 25 shares to arrive at $48.