FINRA FINRA Certifications FINRA-SERIES-7 Questions & Answers

• Question 31:

  Which of the following is available both to owners of stock and owners of limited partnership participations?

  A. deduction of business expenses from income

  B. a share in the profits from earnings

  C. tax credits

  D. deductions for losses in excess of income earned

  Correct Answer: B

  a share in the profits from earnings. Both shareholders and limited partners share in the profits from earnings.

• Question 32:

  Which of the following is not a characteristic of treasury bills?

  A. they are quoted on yield-to-maturity percentages

  B. their payments are exempt from state income tax

  C. the bid price is higher than the offer price

  D. they mature one to three years from the date of issuance

  Correct Answer: D

  they mature one to three years from the date of issuance. Remember the question asks what is "not" a characteristic of treasury bills. The other choices are aspects of treasury bills, which most commonly have maturities of 90 days but never longer than one year.

• Question 33:

  According to FINRA Conduct Rules, a party judged guilty of a rule infraction by the District Business Conduct Committee may then appeal to:

  A. the SEC

  B. the FINRA Board of Governors

  C. the public court system

  D. the FINRA Board of Arbitration

  Correct Answer: B

  the FINRA Board of Governors. The first appeal is to the Board of Governors, then to the SEC, and then to the federal courts.

• Question 34:

  What does the following mean when printed on the stock exchange ticker tape?

  A. one hundred shares of MST traded on the exchange and appear out of order on the tape

  B. trading was suspended on MST pending dissemination of news

  C. the last sale of MST was for 100 shares at 98.25

  D. the preceding transaction in MST was two or more points different than 98.25

  Correct Answer: A

  one hundred shares of MST traded on the exchange and appears out of order on the tape. The ticker symbol followed by "SLD" means that the print is out of sequence.

• Question 35:

  FINRA advertising standards permit a dealer to state that a CMO has an implied AAA rating if the securities are issued:

  A. with an average life no longer than ten years

  B. by a US government agency

  C. by a private issuer who has not yet received an expected AAA rating

  D. in amounts less than $1,000,000

  Correct Answer: B

  by a US government agency. Since government agencies do not apply for ratings, it is permissible to state that its issues have an "implied AAA rating". Private issuers must receive a rating in order to state it in advertising.

• Question 36:

  Which of the following statements about mutual fund fees is accurate?

  A. the management group receives a fee based upon the amount of assets in the fund

  B. the sponsor receives a management fee for buying and selling the fund's portfolio securities

  C. the management group receives part of the sales charge in addition to a management fee

  D. the custodian receives part of the management fee in addition to a fee for safekeeping of the fund's securities

  Correct Answer: A

  the management group receives a fee based upon the amount of assets in the fund. The management fee is based upon the fund's assets. The sale charge in choice C is received by the fund sponsor (underwriter), which could include the management group but not necessarily.

• Question 37:

  Bubba held one XYZ July 30 listed call option when XYZ split 2 for 1. What is the resulting position, Bubba has on the Option Clearing Corporation's record?

  A. long one XYZ July 30 call

  B. long one XYZ July 30 call and short one XYZ July 30 call

  C. long two XYZ July 30 calls

  D. long two XYZ July 15 calls

  Correct Answer: D

  long two XYZ July 15 calls. Double the number of contracts and half the strike price. This is similar to XYZ shareholders doubling the number of shares they hold at the lower price.

• Question 38:

  The agreement between the members of a syndicate and the manager is known as the:

  A. agreement among underwriters

  B. underwriting agreement

  C. standby agreement

  D. selling agreement

  Correct Answer: A

  agreement among underwriters. This agreement authorizes the manager to handle the offering. The final contract between the manager and the issuer is the "underwriting agreement".

• Question 39:

  The accounting statement that represents a company's financial position on a particular date is the:

  A. income statement

  B. balance sheet

  C. Profit and Loss

  D. cash flow statement

  Correct Answer: B

  balance sheet. This report reflects the entire condition of the company by showing all assets, liabilities, and components of net worth.

• Question 40:

  In considering the fairness of a firm's markup, the FINRA considers:

  A. dealer cost for the security

  B. financial condition of the client

  C. profitability of the member firm

  D. amount of the transaction

  Correct Answer: D

  amount of the transaction. The other choices are not FINRA considerations. The dollar amount of the transaction is one of the factors considered in markup fairness. Other factors include the type of security, the amount of service rendered, the unit price of the security, and general availability of the security.