FINRA FINRA Certifications FINRA-SERIES-7 Questions & Answers

• Question 71:

  Bubba owns 200 shares of XYZ at $90, and wishes to hedge the position while generating income. What is the best recommendation?

  A. sell calls

  B. sell puts

  C. buy calls

  D. buy puts

  Correct Answer: A

  sell calls. Calls are covered by the underlying stock. If the calls were exercised, the stock would be delivered to meet the obligation. The income also reduces the break-even of the stock.

• Question 72:

  What rate of return takes into consideration appreciation or depreciation in market value relating to the par value of a debt security?

  A. current yield

  B. yield to maturity

  C. nominal yield

  D. basis yield

  Correct Answer: B

  yield to maturity. The premium or discount in the security price relative to par value is considered when computing the yield to maturity.

• Question 73:

  Which of the following pairs of corporation characteristics are easiest for a partnership to avoid?

  A. business objective and centralized management

  B. continuity of life of the business and limited liability

  C. two or more associates and free transferability of assets

  D. continuity of life of the business and transferability of assets

  Correct Answer: D

  continuity of life of the business and transferability of assets. Partnerships may seek to avoid continuance of the business life and asset transfer. The other choices are too important for partnerships to sacrifice.

• Question 74:

  What expression is used to describe the application of income and revenues derived from the operation of a facility financed from proceeds of a revenue bond?

  A. debt service

  B. flow of funds

  C. revenue funding

  D. disbursement of priorities

  Correct Answer: B

  flow of funds. This is the definition of the term flow of funds.

• Question 75:

  Which of the following have a stated interest rate on the face of the certificates?

  A. treasury bills

  B. treasury notes

  C. treasury bonds

  D. both B and C

  Correct Answer: D

  both B and C. Treasury notes and treasury bonds have stated interest rates. Treasury bills are always sold at a discount to the face amount payable at maturity.

• Question 76:

  A trust instrument drawn pursuant to the Trust Indenture Act of 1939 sets forth which of the following?

  A. the rights of stockholders

  B. the duties of the trustee

  C. the obligations of the issuing corporation

  D. both B and C

  Correct Answer: D

  both B and C. A trust indenture does both of these but does not define the rights of stockholders.

• Question 77:

  Which of the following registered investment companies normally sells with an appropriate commission added to the contract price?

  A. an open-end investment company

  B. a unit investment trust

  C. a face-amount certificate company

  D. a closed-end investment company

  Correct Answer: D

  a closed-end investment company. An open-end investment company may have a sales charge but not a commission.

• Question 78:

  A stock with a current P/E of 17 is selling at $74.50 per share. What are the company's earnings in the trailing 12 months?

  A. about $4.28

  B. $6.20

  C. $1.70

  D. impossible to calculate from this information

  Correct Answer: A

  about $4.28. Divide the market price by the P/E.

• Question 79:

  The price an investor pays for a listed option is called the

  A. strike price

  B. spread

  C. premium

  D. exercise price

  Correct Answer: C

  premium. That's the term for the option cost.

• Question 80:

  Bubba buys an OTC stock from a firm that is a market -maker in the stock. What may be said about the price he pays?

  A. it does not include a markup

  B. it includes a markup

  C. it includes a commission and a markup

  D. it includes a special fee

  Correct Answer: B

  it includes a markup. A market-maker acts as principal. Therefore, Bubba pays a markup but not a commission.