FINRA FINRA Certifications FINRA-SERIES-7 Questions & Answers

• Question 261:

  When the market value in a long margin account decreases, the SMA will:

  A. increase

  B. decrease

  C. stay the same

  D. fluctuate

  Correct Answer: C

  stay the same. The SMA does not decline as the market value declines.

• Question 262:

  If a customer dies, the registered representative is required to:

  A. cancel all open (good `til cancelled) orders

  B. await instructions and necessary papers from the executor of the estate

  C. sell out the account

  D. both A and B

  Correct Answer: D

  both A and B. These describe the activities a registered representative should undertake when a customer dies.

• Question 263:

  Bubba is a registered representative who wishes to buy shares of a new issue his firm is distributing. Under FINRA Conduct Rules, Bubba may:

  A. not do so under any circumstance

  B. do so if he has a history of buying hot issues

  C. not do so for his own account, buy may purchase shares for his sister's account

  D. do so if his allotment is insubstantial and not disproportionate to public orders

  Correct Answer: A

  not do so under any circumstance. New issues may not be distributed to Bubba or members of his immediate family.

• Question 264:

  Which of the following are considered to be discretionary orders under the FINRA Rules of Fair Practice?

  A. a customer instructs her registered representative to purchase stock in XYZ whenever the representative deems the price to be right

  B. a customer instructs her registered representative to sell 300 shares of ABC that is long in her account whenever the representative thinks the time and price are appropriate

  C. a customer gives a member firm a check for $25,000 and instructs the firm to purchase bank stocks and insurance company stocks when the prices appear to be favorable

  D. both A and C

  Correct Answer: D

  both A and C. Choice A is discretionary because the customer did not specify a quantity to purchase. Choice B only provides discretion about timing and thus is not discretionary. Choice C is clearly discretionary.

• Question 265:

  When pricing callable municipal bonds, the "price to call" is based upon which of the following?

  A. in-whole calls

  B. partial calls

  C. sinking fund calls

  D. catastrophe calls

  Correct Answer: A

  in-whole calls. Price to call computations are based upon in-whole calls only. These calls will result in all bondholders being called simultaneously, thus guaranteeing a minimum yield to all.

• Question 266:

  In terms of depletion, percentage depletion is better than cost depletion because it:

  A. permits recovery of more than the original cost

  B. is limited to production

  C. is more widely available

  D. is not subject to recapture

  Correct Answer: A

  permits recovery of more than the original cost. Percentage depletion is only available for small producing wells.

• Question 267:

  Under which of the following conditions may a registered representative of a firm that is an underwriter of a new offering of common stock send to a client a copy of the firm's research report on that stock?

  A. if it is accompanied by a red herring

  B. if he has permission of his employer

  C. if his firm is not the managing underwriter

  D. under no circumstances

  Correct Answer: D

  under no circumstances. The representative may send the red herring but not a research report of his firm.

• Question 268:

  Which of the following is true about option prices?

  A. premiums on options for listed stocks are usually greater than on unlisted stocks

  B. premiums on options of higher-priced stocks are usually greater than on lower-priced stocks

  C. premiums on options of well-known companies are usually larger than on lesser-known companies

  D. premiums on options of volatile stocks are usually larger than on less volatile stocks

  Correct Answer: D

  premiums on options of volatile stocks are usually larger than on less volatile stocks. The likelihood of exercise increases with the volatility of a stock. Therefore, a higher premium is demanded.

• Question 269:

  On which of the following is depreciation permitted?

  A. rental property whose value is declining

  B. residential property not used for business

  C. property whose maintenance exceeds the investment credit

  D. equipment subject to recapture

  Correct Answer: B

  residential property not used for business. Depreciation is only permitted on income-producing property.

• Question 270:

  Who owns a corporation?

  A. the owners of debentures

  B. the holders of common stock

  C. the holders of common stock and the holders of preferred stock

  D. the government

  Correct Answer: C

  the holders of common stock and the holders of preferred stock. The holders of all classes of stock are the owners. Each stock class has separate privileges, but all represent ownership. Even if the government is an owner, it holds shares of stock.