FINRA FINRA Certifications FINRA-SERIES-7 Questions & Answers

• Question 381:

  Bubba buys one XYZ June 40 call for $1,000 and sells one XYZ March 40 call for $600. Subsequently, the June call is closed for $1,200 and the March call for $900.

  What is Bubba's net result?

  A. $100 loss

  B. $100 profit

  C. $200 loss

  D. $200 profit

  Correct Answer: A

  $100 profit. The long position in the June call is a $200 profit ($1,200 - $1,000). The short position in the March call is a $300 loss ($900 - $300). Combining the gain and loss results in a $100 loss.

• Question 382:

  A registered representative just accepted Bubba's instructions to buy a specific stock in the over-the-counter market with the credit balance in his account. Which of these orders for that issue can be entered and executed on a single ticket in a typical broker/dealer organization?

  A. buy 150 XYZ at market

  B. buy 150 XYZ at 17.50 or better

  C. buy $2,500 worth of a mutual fund XYZ Corporation

  D. all of these

  Correct Answer: D

  all of these. In the OTC market, all of these orders are possible. A mutual fund is considered OTC.

• Question 383:

  What is the possible reward for investing in raw land?

  A. deferred income

  B. large deductions

  C. potential capital appreciation

  D. lack of investment risk

  Correct Answer: C

  potential capital appreciation. This is the only correct choice. Any income is not deferred, raw land cannot be depreciation for a large deduction, and there is substantial risk.

• Question 384:

  Bubba has not existing positions in his account and writes 1 XYZ July 60 put and 1 XYZ July 60 call. What is this position called?

  A. short combination

  B. long combination

  C. long straddle

  D. short straddle

  Correct Answer: D

  short straddle. A straddle is a put and call on the same stock with the same strike price and expiration date.

• Question 385:

  Bubba buys one XYZ September 50 call at $7 and sells one XYZ September 60 call at $3. At that time, XYZ stock is at $55. Bubba has no other stock positions. At what must XYZ trade for Bubba to break even?

  A. $54

  B. $55

  C. $57

  D. $60

  Correct Answer: A

  $54. Bubba's position is a bullish spread. The breakeven is determined by adding the debit amount to the lower strike price. The debit amount is $4 ($7 - $3). Adding that to $50 equals $54.

• Question 386:

  Which securities do not receive dividends?

  A. ADRs

  B. warrants

  C. common stock

  D. preferred stock

  Correct Answer: B

  warrants. All of the other choices receive dividends if they are declared. But only warrants are a specific security that never pays dividends.

• Question 387:

  Provisions of SEC Rule 145 normally apply to an exchange of one security for another as a result of:

  A. a stock split

  B. a change in par value

  C. a merger

  D. a "no-sale" ruling issued by the SEC

  Correct Answer: C

  a merger. Rule 145 basically applies to mergers, consolidations, and acquisitions.

• Question 388:

  Bubba has been classified as a restricted person according to Rule 2790. He may purchase equity securities of an IPO except:

  A. to purchase securities to avoid dilution

  B. when the new issue of securities is purchased pursuant to a stand-by agreement

  C. when the transaction is exempt by an order of the FINRA

  D. when the new issue of securities is purchased pursuant to a best effort basis

  Correct Answer: D

  when the new issue of securities is purchased pursuant to a best effort basis. All the other choices are allowable under the rule "except" this one.

• Question 389:

  When a corporation issues a nonconvertible debenture, what is the effect upon its net worth?

  A. it increases

  B. if decreases

  C. if is unchanged

  D. none of the above

  Correct Answer: C

  it is unchanged. The debentures add to liabilities and to cash (an asset) received from the sale. There is no effect on net worth.

• Question 390:

  Who obtains and pays the municipal bond attorney rendering a legal opinion about the validity of the bond issue?

  A. the purchaser of the bonds

  B. the underwriter

  C. the issuing municipality

  D. the municipality's financial adviser

  Correct Answer: C

  the issuing municipality. The issuer pays for the attorney.