FINRA FINRA Certifications FINRA-SERIES-7 Questions & Answers

• Question 61:

  A NYSE floor member executing an order for a public customer asks the specialist in the stock to guarantee a price while giving the customer an opportunity to obtain a better price. This procedure is known as:

  A. a stop order

  B. stopping stock

  C. floor protection

  D. a special deal

  Correct Answer: B

  stopping stock. This is the definition of the term "stopping stock".

• Question 62:

  Bubba buys a 5% municipal bond maturing in 15 years that is trading at a market price of 85. What is the yield to maturity using the "rule of thumb" method?

  A. 5.00%

  B. 5.88%

  C. 5.10%

  D. 6.49%

  Correct Answer: D

  6.49%. Divide the discount from par value of $150 ($1,000 - $850) by the number of years to maturity (15) to determine the annual discount. Add the result of $10 to the annual interest ($50) to determine the total annual return. Divide the result of $60 by the average of the current price (85) and par (100). The result is 60 divided by 92.5, which equals 6.49%.

• Question 63:

  A mutual fund with an 8% load and a 1% redemption fee carries a current quote of $6.25 - $6.79. If an investor has tendered his shares for redemption on that basis, the per share price he will receive is approximately:

  A. $6.79

  B. $6.72

  C. $6.25

  D. $6.19

  Correct Answer: D

  $6.19. The fund has a redemption fee of 1%. This is about 6 cents based upon the bid price. Subtracting that from the $6.25 bid results in $6.19.

• Question 64:

  The return by the receiving party of securities previously accepted for delivery or a demand by the delivering party for return of securities that have been delivered is called:

  A. rejection

  B. close-out

  C. reclamation

  D. re-delivery

  Correct Answer: C

  reclamation. In a reclamation a dealer requests that another dealer reclaim an improper delivery.

• Question 65:

  Which of the following is identified as a funded debt instrument?

  A. US treasury bond

  B. Series EE savings bond

  C. corporate bond

  D. Fannie Mae bond

  Correct Answer: C

  corporate bond. All of the other securities are issues backed by the US government, which are not considered funded debt.

• Question 66:

  Bubba buys a bond issued at par with a 5% coupon that is convertible into common stock at $40. What conversion ratio does Bubba determine?

  A. 40

  B. 30

  C. 25

  D. 15

  Correct Answer: C

  25. The conversion ratio is how many shares of common stock Bubba obtains by converting. Divide the bond price - $1,000 for a single bond - by the $40 conversion price.

• Question 67:

  Which of the following does not appear in the official notice of sale?

  A. method and place of settlement

  B. denominations and registration privileges

  C. an offering scale of serial maturates

  D. amount of good faith check required

  Correct Answer: C

  an offering scale of serial maturates. The scale is set by the successful bidder.

• Question 68:

  Bubba owns a subordinated debenture in a company that is liquidating. When will he get paid?

  A. after the company pays its outstanding bills, but before paying bank loans

  B. after the bills are paid and the bank is paid, but before the preferred shareholders

  C. before the holders of secured debt

  D. after the shareholders of preferred stock

  Correct Answer: B

  after the bills are paid and the bank is paid, but before the preferred shareholders. As a creditor, Bubba is paid before any of the shareholders. But his position is subordinated to other creditors, like the bank and accounts payable.

• Question 69:

  In a 401(k) plan, when are employee's contributions of compensation deferral vested?

  A. after 2 years

  B. immediately

  C. after 5 years

  D. the same as the employer's contributions

  Correct Answer: B

  immediately. The employer's contributions may be subject to a vesting schedule, but the employee's contributions are immediately vested.

• Question 70:

  In the offering of new securities, members of the syndicate are permitted to sell to other dealers less the reallowance. The amount of the reallowance is determined by:

  A. the FINRA

  B. the issuing corporation

  C. the syndicate manager

  D. the SEC

  Correct Answer: C

  the syndicate manager. The reallowance as well as the selling concession given to selling group members are determined by the managing underwriters.