FINRA FINRA-SERIES-7 Online Practice Questions and Exam Preparation

FINRA FINRA-SERIES-7 Online Questions & Answers

• Question 61:

  Bubba buys a US treasury bond. The interest he earns is:

  A. subject to federal and state income tax
  B. exempt from federal and state income tax
  C. subject to state income tax but exempt from federal income tax
  D. subject to federal income tax but exempt from state income tax
  D. subject to federal income tax but exempt from state income tax

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  Explanation/Reference:

  subject to federal income tax but exempt from state income tax. The interest on US government securities is taxed by the US government but not by state governments. The opposite is true of bonds issued by a state, which are exempt from federal tax but subject to state taxes -except for taxes of the state that issues them.

• Question 62:

  Bubba decides to buy equity securities. Which of the following statements is always true about what Bubba is buying?

  A. they are readily marketable
  B. they have a fixed rate of return
  C. they have a fixed maturity date
  D. they are not secured by collateral
  D. they are not secured by collateral

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  Explanation/Reference:

  they are not secured by collateral. Equity is ownership, which has no collateral security...or any other kind of security such as a guaranteed return, maturity, or marketability.

• Question 63:

  Bubba has a cash account and fails to make full and prompt payment for a purchase. The broker liquidated the transaction. Two weeks later, Bubba places another buy order for 100 shares of XYZ. What does the broker do?

  A. refuses the order
  B. handles the order after obtaining a promise from Bubba to effect prompt settlement
  C. requires a 25% down payment before executing the order
  D. executes the order at its own risk
  A. refuses the order

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  Explanation/Reference:

  refuses the order. Reg T requires that under these circumstances the account must be frozen for 90 days. Any trade prior to that, requires cash in advance.

• Question 64:

  A tax-free rollover of assets between qualified retirement plans for the benefit of a specific individual is permitted so long as it is accomplished within:

  A. 30 days
  B. 60 days
  C. 90 days
  D. one year
  B. 60 days

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  Explanation/Reference:

  60 days. ERISA permits 60 days for rollovers.

• Question 65:

  Bubba Corporation owes income tax. Which of the following may be tendered at par value for payment of the tax?

  A. term bond
  B. tax anticipation bill
  C. special tax bond
  D. pre-issue bond
  B. tax anticipation bill

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  Explanation/Reference:

  tax anticipation bill. These are specifically designated securities that may be used at face value for payment of corporate taxes.

• Question 66:

  To qualify as an intrastate offering under SEC Rule 147, which of the following is true of the issue?

  A. it must be approved by the SEC
  B. it must be sold only to bona fide residents of one state
  C. it cannot exceed $1,500,000 in value
  D. it must consist of common stock only
  B. it must be sold only to bona fide residents of one state

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  Explanation/Reference:

  it must be sold only to bona fide residents of one state. Under Rule 147 intrastate offerings are sold only to residents of one state and cannot be sold outside that state for nine months. All the other choices are incorrect about the rule.

• Question 67:

  Which of the following receives the highest priority of a municipal bond trustee when applying income and revenue derived from a financed toll facility?

  A. renewal and replacement fund
  B. operation and maintenance fund
  C. bond service account fund
  D. reserve maintenance fund
  B. operation and maintenance fund

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  Explanation/Reference:

  operation and maintenance fund. This receives the top priority followed by debt service, maintenance reserves, and lastly renewal and replacement.

• Question 68:

  The initial Federal Reserve Bank margin requirement is set at 60% and Bubba purchases 100 shares of XYZ at $100 per share. He deposits $6,000 of the $10,000 purchase price in his account. If XYZ increases in value to $150 per share, how much excess equity would Bubba have in his account?

  A. $1,000
  B. $1,500
  C. $2,000
  D. $3,000
  C. $2,000

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  Explanation/Reference:

  $2,000. Bubba started with $6,000 of equity and a debit balance of $4,000. The market value of his XYZ stock increased by $5,000 ($15,000 - $10,000). Therefore, his equity increased to $11,000. Since Bubba only needs 60% equity, his Reg T requirement is $9,000 ($15,000 x 60%). His equity exceeds the requirement by $2,000.

• Question 69:

  Convertible preferred stock has all of the following characteristics except:

  A. a lower dividend rate than non-convertible preferred
  B. a dilution of earnings if converted into common stock
  C. a requirement for shareholders to always accept the call price when called
  D. required dividend payments to shareholders before any dividends are paid to holders of common stock
  C. a requirement for shareholders to always accept the call price when called

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  Explanation/Reference:

  a requirement for shareholders to always accept the call price when called. All of the other statements are true "except" this one. Convertible preferred shareholders have a n opportunity to convert to common stock. There is no forced call price.

• Question 70:

  Bubba is age 54 and has investments in a retirement plan with his former employer valued at $104,500. Bubba withdraws $25,000 to open a retail clothing store. Which of the following statements is true regarding Bubba's tax consequences?

  A. the entire account is terminated and $104,500 is immediately taxable
  B. a penalty of 10% of the withdrawn amount is assessed
  C. a penalty of 10% on all assets in Bubba's account is assessed
  D. only regular income tax is due on the amount withdrawn
  B. a penalty of 10% of the withdrawn amount is assessed

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  Explanation/Reference:

  a penalty of 10% of the withdrawn is assessed. Bubba also owes regular income tax on the withdrawn amount in addition to the 10% penalty for early withdrawal.