FINRA FINRA Certifications FINRA-SERIES-7 Questions & Answers

• Question 271:

  Bubba Securities, Inc. offers 3,000,000 shares of Top Notch Manufacturing Corporation common stock at $27 per share. The next day an advertisement appears in the Wall Street Journal announcing the offering and listing the names of

  some of the underwriting firms.

  This ad is commonly referred to as a:

  A. public offering

  B. tombstone ad

  C. sales directive

  D. syndicate announcement

  Correct Answer: B

  tombstone ad. Tombstone ads are used to announce new issues. They do not offer to buy or sell securities. They are informational only.

• Question 272:

  A short sale can be made in which of the following types of accounts?

  A. special cash account

  B. a custodian account

  C. margin account

  D. special memorandum account

  Correct Answer: C

  margin account. A margin account is required for short sales.

• Question 273:

  The net investment income of an open-end investment company represents:

  A. net income from dividends and interest paid on securities in the fund's portfolio

  B. net gains on sales of portfolio securities

  C. dividends, interest, and net gains on sales of securities

  D. net profits from the investment company operation

  Correct Answer: A

  net income from dividends and interest paid on securities in the fund's portfolio. Net investment income is dividends and interest but not capital gains.

• Question 274:

  The FINRA Conduct Rules permit a transaction made "seller's option" to be delivered earlier than the expiration of the contract if:

  A. the buyer is given one-day notice in writing

  B. the seller is located in New York City

  C. the client requests it

  D. the buyer is a non-clearing member

  Correct Answer: A

  the buyer is given one-day notice in writing. A contract made on a "seller's option" may be terminated by the seller at an earlier date, provided that he gives the buyer one-day notice.

• Question 275:

  In a triple net lease, which of the following is the tenant not responsible for paying?

  A. taxes

  B. financing charges

  C. insurance premiums

  D. maintenance

  Correct Answer: B

  financing charges. In a triple net lease, the tenant is responsible for taxes, insurance, and maintenance.

• Question 276:

  Which of the following securities is traded only in the over-the-counter market?

  A. corporate bonds

  B. preferred stocks

  C. open-end investment companies

  D. closed-end investment companies

  Correct Answer: C

  open-end investment companies. Open-end mutual funds are a continuous offering of new securities that are not traded on an exchange. They trade only in the over-the-counter market. The other choices may trade over- the-counter or on exchanges.

• Question 277:

  Which of the following has the greatest risk?

  A. a guaranteed corporate bond

  B. a GNMA bond

  C. a Series H bond

  D. a treasury bill

  Correct Answer: A

  a guaranteed corporate bond. All of the other securities are obligations of the US government, which is considered to have minimal or no risk.

• Question 278:

  Bubba buys a municipal bond at a discount and holds it to maturity. Which of the following is true?

  A. interest is taxable as ordinary income

  B. the capital gain is tax exempt

  C. interest is tax exempt, but the capital gain is taxable

  D. the capital gain is tax exempt, but the interest is taxable as ordinary income

  Correct Answer: C

  interest is tax exempt, but the capital gain is taxable. This happens because Bubba purchased the bond in the secondary market with a different price than the original issue face amount.

• Question 279:

  Which of the following best describes depreciation?

  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 investors

  D. capitalized an amortized maintenance costs

  Correct Answer: B

  deductions from gross income to offset lower value of equipment. Depreciation is the deduction of costs for capital assets as their value declines.

• Question 280:

  Hypothecation usually refers to which of the following?

  A. forecasting the market based upon past performance

  B. pledging securities as collateral

  C. determining a reasonable offering price for a new issue

  D. none of the above

  Correct Answer: B

  pledging securities as collateral. To hypothecate securities is to pledge them.