FINRA FINRA Certifications FINRA-SERIES-7 Questions & Answers

• Question 331:

  The registration requirements of the federal securities acts are intended to protect the public interest by providing for a prospectus on new issues and its review by the SEC. Which of the following is the true of this process?

  A. It provides the SEC with adequate information on which to base approval for new issues

  B. It does not imply SEC approval of the issue

  C. It guarantees purchasers against an untrue statement of material fact or an omission of material fact

  D. It relieves participating underwriters from any further responsibility for checking essential facts before recommending purchase to the customers

  Correct Answer: A

  It does not imply SEC approval of the issue. The SEC does not approval an issue. It only attempts to see that sufficient information has been provided from which a proper investment determination may be made.

• Question 332:

  The Bubba Fund is a load mutual fund that offers a reinvestment plan. What does this mean?

  A. purchasers of fund shares must agree to make regular investments over a period of years

  B. income, dividend, and capital gain distributions may be automatically used to purchase new shares of the fund

  C. holders of fund shares are permitted to regularly purchase additional shares at the bid price

  D. no federal income taxes are paid on dividends and capital gain distributions from the fund

  Correct Answer: B

  income, dividend, and capital gain distributions may be automatically used to purchase new shares of the fund. The new purchases are at the ask price, not the bid price.

• Question 333:

  Bubba buys a 5% bond that matures in 15 years with a 5.10 basis. How much did he pay for the bond?

  A. 5.00

  B. 98.96

  C. 100.00

  D. 105.10

  Correct Answer: B

  98.96. A calculator is not required for this. Even Bubba knows the bond is obviously trading at a slight discount by yielding 5.10% instead of the coupon rate of 5%. If the yield was the same as the coupon rate, the price is 100.00.

• Question 334:

  A call option is in the money when the market value of the underlying stock is:

  A. lower than the strike price of the option

  B. the same as the strike price of the option

  C. higher than the strike price of the option

  D. higher than the strike price plus the premium

  Correct Answer: C

  higher than the strike price of the option. The premium paid is not relevant. All that matters are the strike price of the option relative to the market value of the underlying stock.

• Question 335:

  Which of the following may occasionally be purchased at a discount from net assets value?

  A. no-load funds

  B. closed-end funds

  C. open-end funds

  D. contractual plans

  Correct Answer: B

  closed-end funds. Mutual funds are purchased at NAV (when no-load) or NAV plus a sales charge. The pricing of closed-end funds is determined by market activity and has no direct link to NAV.

• Question 336:

  When depositors withdraw money from savings institutions to invest in US treasury securities, this is called:

  A. the multiplier effect

  B. disintermediation

  C. reverse repo

  D. open market operations

  Correct Answer: B

  disintermediation. An easier word would be preferable, but that's the correct term.

• Question 337:

  Bubba owns stock with cumulative voting rights. There are five vacancies on a board and he owns 100 shares of stock. Bubba is entitled to cast the following votes:

  A. a total of 100 votes

  B. a total of 100 votes per

  C. a total of 500 votes

  D. you are not allowed to vote

  Correct Answer: C

  500 votes. Under cumulative voting, the number of directors is multiplied by the number of shares owned. The votes may be cast all for a single director or divided in any manner among the directors.

• Question 338:

  In a corporation's financial statements, earned surplus is also recognized as:

  A. gross profit

  B. operating income after payment of interest expense

  C. earnings retained after payment of dividends to shareholders

  D. net income

  Correct Answer: C

  earnings retained after payment of dividends to shareholders. The other choices are clearly incorrect. Earned surplus is also referred to as retained earnings.

• Question 339:

  Convertible bonds have all of the following features except:

  A. an ability to protect a short position on the stock into which they are convertible

  B. permissibility for use as collateral

  C. a normally higher yield than non-convertible bonds of the same issuer

  D. fluctuations influenced by changes in the price of the underlying common stock

  Correct Answer: C

  a normally higher yield than non-convertible bonds of the same issuer. Remember that the question says "except" for this feature. Convertible bonds normally do NOT have a higher yield than non-convertible bonds of the same issuer. Convertibles usually have a lower yield than non -convertible sisters.

• Question 340:

  Which of the following holders of unregistered stock is precluded from selling shares under Rule 144?

  A. an institutional investor

  B. an officer of the issuing corporation

  C. a broker/dealer firm

  D. a holder of more than 10% of the outstanding stock

  Correct Answer: C

  a broker/dealer firm. A broker/dealer cannot use Rule 144 when selling stock.