FINRA FINRA Certifications FINRA-SERIES-7 Questions & Answers

• Question 81:

  Which of the following is not good delivery on a sale of 470 shares?

  A. 47 10-share certificates

  B. 4 100-share certificates and one 70-share certificate

  C. 8 50-share certificates, one 40-share certificate, and one 30-share certificate

  D. 2 100-share certificates and 3 90-share certificates

  Correct Answer: D

  2 100-share certificates and 3 90-share certificates. Three 90-share certificates are not good delivery because they cannot be combined into 100-share amounts.

• Question 82:

  Which of the following does not affect the public offering price of a new issue?

  A. anticipated earnings of the issuer in the next year

  B. dividend projections for the next year

  C. the book value of the issuer

  D. the selling group's determination of value in the prevailing market conditions

  Correct Answer: D

  the selling group's determination of value in the prevailing market conditions. The offering price is determined by factors related to the issuer.

• Question 83:

  Municipalities are most likely to issue notes for which of the following purposes?

  A. short-term cash needs

  B. federal income tax payments

  C. repairs to infrastructure

  D. long-term financing

  Correct Answer: A

  short-term cash needs. Notes are generally used for short-term needs.

• Question 84:

  Bubba buys municipal bonds with a $100,000 principal amount at 89 on margin. His account has no cash or securities. What is his minimum required deposit?

  A. $5,080

  B. $13,350

  C. $22,500

  D. $50,000

  Correct Answer: B

  $13,350. Munis are not subject to Reg T. The NYSE maintenance requirement on munis is the greater% of the market value or 7% of the principal amount.

• Question 85:

  Bubba is concerned about the liquidity of a possible municipal bond purchase. He is therefore probably most interested in the rating supplied by which of the following?

  A. the bond buyers

  B. Moody's

  C. White's

  D. Dow Jones

  Correct Answer: C

  White's. White's ratings are based on trading market data as opposed to the financial data of the issue, which is used by Moody's as well as SandP.

• Question 86:

  Reinvestment of dividends and distributions from investment company shares:

  A. results in compounding of shares, which can be an important factor for investment growth

  B. permits deferment of all federal income taxes on dividends and distributions until the investment is liquidated

  C. makes possible the purchase of fund shares at a price below net asset value

  D. all of the above

  Correct Answer: A

  results in compounding of shares, which can be an important factor for investment growth. Reinvesting dividends and capital gains increases the number of shares owned. Occasionally, these programs permit purchases at net asset value, but never below that price. Shareholders do not avoid current tax liability on the amount of dividends and capital gains reinvested.

• Question 87:

  In which of the following is not a case where a deed to a condominium qualifies as a security?

  A. the seller intends to profit

  B. there is management by someone other than the owner

  C. there is a time and space rental pool

  D. there is a 14-day owner usage provision

  Correct Answer: D

  there is a 14-day owner usage provision. This provision is unrelated to qualification as a security.

• Question 88:

  Which of the following best describes phantom income?

  A. income from deductions and tax credits

  B. the non-taxable portion of a distribution

  C. income received but not reported

  D. income reported but not received

  Correct Answer: D

  income reported but not received. Reportable income that is not distributable includes loan forgiveness.

• Question 89:

  Bubba buys a $4 convertible preferred with a $50 par value that is exchangeable for common stock at 47.50. If the preferred stock is trading at 52 and the common stock at 51, Bubba determines that the preferred stock is:

  A. overpriced and will quickly decline

  B. selling at a 4% premium over conversion value

  C. underpriced and should rise quickly

  D. going to be called when the common stock price is $52

  Correct Answer: C

  underpriced and should rise quickly. The parity price for the common stock is about $49.38 - determined as:50 / 47.50 = 1.053 52 / 1.053 = 49.38 Since the common stock is trading at 51, the preferred is underpriced.

• Question 90:

  The cost of maintaining an investment in a mutual fund is best reflected in the:

  A. custodial fee

  B. sales charge

  C. expense ratio

  D. net investment income

  Correct Answer: C

  expense ratio. Custodial fees are negligible and the sales charge is a one-time expense. The "best" reflection of mutual fund costs is the expense ratio.