FINRA FINRA Certifications FINRA-SERIES-7 Questions & Answers

• Question 41:

  Limited partnerships try to avoid recapture because:

  A. it turns potential capital gains into current taxable income

  B. it may subject the partnership to the add-on tax

  C. it increases the risk of a tax audit

  D. it always increases the investor's tax bracket

  Correct Answer: A

  it turns potential capital gains into current taxable income. Recapture is taxed as ordinary income, not capital gain. The other choices are not true.

• Question 42:

  Which of the following are direct obligations of the US government?

  A. Import-Export bank bonds

  B. Series EE bonds

  C. Farm Credit System bonds

  D. both B and C

  Correct Answer: B

  Series EE bonds. Import-Export bank bonds and Farm Credit System bonds are not direct obligations of the United States.

• Question 43:

  Which of the following is not found in the final prospectus?

  A. a statement as to possible stabilization by the manager

  B. the public offering price

  C. a copy of the underwriting agreement

  D. a statement that the SEC neither approves nor disapproves of the issue

  Correct Answer: C

  a copy of the underwriting agreement. The underwriting agreement is "not" in the final prospectus. This is a contract between the issuer and the underwriting syndicate.

• Question 44:

  A limit order is best describes as an order:

  A. to buy at a specific price or lower

  B. to sell at a specific price or higher

  C. to be executed at a specific price or better

  D. that is in effect for only one day

  Correct Answer: C

  to be executed at a specific price or better. Choice A is only a buy limit order and choice B is only a sell limit order. Choice C is the correct definition of a "limit order".

• Question 45:

  A market-maker has purchased a particular stock over a period of time for prices as high as $9 per share and as low as $3 per share. The average cost is approximately $6 per share. The current NASDAQ quote for the stock is 5 to 5.25. According to the FINRA Conduct Rules, the dealer's offering price to the public should be based upon:

  A. the current market for the stock

  B. $3

  C. $9

  D. $6

  Correct Answer: A

  the current market for the stock. FINRA rules require the markup to be based upon the current market price.

• Question 46:

  An excerpt from a recent tombstone ad reveals bonds offered publicly at 101. Why were they priced at a premium?

  A. to enable investors to establish a tax loss when the bonds are redeemed at maturity

  B. to reflect prevailing credit ratings and market conditions for the issuer

  C. to provide the issuer with a larger deduction from pre-tax earnings for higher than usual interest payments

  D. to comply with SEC rules mandating such pricing for debt issues maturing in the year 2000 and thereafter

  Correct Answer: B

  to reflect prevailing credit ratings and market conditions for the issuer. Premiums or discounts are used in bond offerings to bring the yield in line with current market conditions.

• Question 47:

  A wealth investor gives Bubba discretion to invest $50,000 for him in any way Bubba sees fit. Therefore, Bubba must:

  A. a registered representative with the SEC under the Investment Advisors Act of 1940

  B. conform to the prudent man requirements in that state

  C. furnish written documents of authority to the brokerage firm executing the orders

  D. be registered with the NYSE and FINRA as a representative

  Correct Answer: C

  furnish written documents of authority to the brokerage firm executing the orders. The wealthy investor has simply given Bubba discretion over the account. The brokerage firm only requires evidence that this authority has been granted to Bubba.

• Question 48:

  Revenue bonds are least likely to provide constructions funds for:

  A. a toll highway

  B. an airport

  C. a public school

  D. a pollution control facility

  Correct Answer: C

  a public school. Schools are typically financed by general obligation bonds. The other choices are examples of revenue bonds.

• Question 49:

  A corporate bond is quoted as having a net change in value of plus one point. By how much did the bond price increase?

  A. $1,000

  B. $100

  C. $10

  D. $1

  Correct Answer: C

  $10. A point is 1% and bonds are priced in $1,000 increments. Multiplying $1,000 by 1% equals $10.

• Question 50:

  Which of the following does not describe an underwriting procedure?

  A. best efforts

  B. all or none

  C. standby

  D. fill or kill

  Correct Answer: D

  fill or kill. Fill or kill is an order qualifier. It requests immediate execution of the whole order or immediate cancellation. A best efforts underwriting, frequently linked to all or none, is usually seen on small new issues. A standby underwriting is utilized to guarantee the success of a rights offering.