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

FINRA FINRA-SERIES-7 Online Questions & Answers

• Question 271:

  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
  A. common stock

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  Explanation/Reference:

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

• Question 272:

  In a competitive bidding for mortgage bonds of a large public utility the winning underwriter is determined by:

  A. the highest dollar amount paid to the issuer
  B. the lowest net interest cost to the issuer
  C. the shortest maturity date for the bonds
  D. the refunding and sinking fund terms in the indenture
  B. the lowest net interest cost to the issuer

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  Explanation/Reference:

  the lowest net interest cost to the issuer. All competitive bids are based upon the lowest interest cost.

• Question 273:

  Which of the following is a right for shareholders of common stock?

  A. the right to have the stock price increase
  B. the right to vote about important matters of the company
  C. the right to dividends
  D. both B and C
  B. the right to vote about important matters of the company

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  Explanation/Reference:

  the right to vote about important matters of the company. Shareholders have no expectation of stock price increase or dividends. They are entitled to receive dividends only if the board of directors declares them.

• Question 274:

  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
  A. preemptive rights

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  Explanation/Reference:

  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 275:

  Which of the following option positions is indicative of the same class of option?

  A. long one XYZ July 70 put and one XYZ July 70 call
  B. long one XYZ October 20 call and one XYZ January 30 call
  C. short one XYZ February 60 put and one ABC February 60 put
  D. short one XYZ June 40 call and one ABC June 20 call
  B. long one XYZ October 20 call and one XYZ January 30 call

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  Explanation/Reference:

  long one XYZ October 20 call and one XYZ January 30 call. Options in the same class are either both puts or both calls on the same security.

• Question 276:

  Bubba is long spot Canadian dollars at 0.7400. If he wants to buy one put option on Canadian dollars with a strike price of 74 and a cost of $0.35, what is Bubba's breakeven price for Canadian dollars?

  A. 0.4900
  B. 0.7365
  C. 0.7400
  D. 0.7435
  D. 0.7435

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  Explanation/Reference:

  0.7435. The put protects against a decline in the exchange rate for Canadian dollars. However, the cost of the put raises the breakeven point to 0.7435 (0.7400 + 0.0035).

• Question 277:

  Which of the following would not normally be a function of an investment banker?

  A. providing short-term capital needs to client companies
  B. underwriting new issues of securities
  C. providing long-term capital needs to client companies
  D. assisting in large secondary offerings of securities
  A. providing short-term capital needs to client companies

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  Explanation/Reference:

  providing short-term capital needs to client companies. The short-term capital needs of companies are normally the function of commercial bankers, not investment bankers.

• Question 278:

  Under what circumstances may a municipal securities dealer guarantee a customer against loss in market value of bonds?

  A. under no circumstances
  B. only if the agreement is in writing
  C. only if the bonds are rated AAA or Aaa
  D. only if the bonds are insured
  A. under no circumstances

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  Explanation/Reference:

  under no circumstances. No guarantees may be made against loss of market value because no one can guarantee the direction of the market. Insured bonds are protected against loss of principal and interest but not against market value depreciation.

• Question 279:

  The return by the receiving party of securities previously accepted for delivery or a demand by the delivering party for return of securities that have been delivered is called:

  A. rejection
  B. close-out
  C. reclamation
  D. re-delivery
  C. reclamation

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  Explanation/Reference:

  reclamation. In a reclamation a dealer requests that another dealer reclaim an improper delivery.

• Question 280:

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

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  Explanation/Reference:

  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.