Series 7 Practice Exam Multiple Choice
Questions with 100% Correct Answers
When discussing a corporation's capitalization, each of the below would be
included except:
A: non-voting class B preferred stock
B: subordinated debentures rated BB+ by Standard & Poor's
C: earned surplus
D: plant & equipment - ✔✔Plant and equipment
Capitalization includes Stockholders' Equity and Long-term Debt. Plant &
Equipment are Fixed Assets, which are assets purchased with the Capital raised
by the business but are not themselves considered Capital
Miami-Dade County currently has the following four GOs outstanding. All issues
possess a call feature and have coupons and maturities as shown below.
Assume all issues have similar principal amounts outstanding. In the event
interest rates decline, and the County plans to do a refunding of only one of the
four outstanding GOs, which issue would most likely be called?
Page 1 of 91
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION
NUMBER: 619652435. TERMS OF USE. PRIVACY STATEMENT.ALL RIGHTS RESERVED
,A :6.25s31 callable at 100
B 5.50s33 callable at 100½
C 4.65s34 callable at 101
DZr29 callable at 100 - ✔✔A :6.25s31 callable at 100
f you were in charge of finances for the county and you were considering paying
off only one of your debts, wouldn't it be the debt that's costing the county the
most (the highest interest rate)? In this scenario, the county will retire/call the
6.25% callable bonds because those are costing the county the most every year.
Also notice that those bonds have an added advantage - they are callable at
100, which means at Par, meaning there is no call 'premium' required to retire
them.
When viewing the latest quotes on T-bills, you note that the current quote on
the new 3 month Bills, 0.50 − 0.55, is somewhat higher than the quote on new 3
month Bills at the previous auction.
A T-bill prices have risen
B The yield curve is inverting
C The Fed is easing the money supply
Page 2 of 91
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION
NUMBER: 619652435. TERMS OF USE. PRIVACY STATEMENT.ALL RIGHTS RESERVED
,D T-bill discounts have increased - ✔✔D T-bill discounts have increased
T-bills are not quoted as a percentage of par, whereas notes and bonds are. Bill
quotes represent the percentage of Discount from Par Value at which banks and
dealers purchase T-bills at the Fed Auction. If you're told that this week's
quotes, which are discounts from par, are HIGHER than the discounts from last
week, that means T-Bill purchase prices have gotten LOWER -----we all know
that when department stores increase the DISCOUNT, the price in dollars gets
cheaper. It's the same with T-bills. For any of you who put answer A, it is wrong
because it says prices have gone up. When a discount gets higher/bigger, the
sale price goes down.
CPU Industries, Inc. (ticker symbol CPU) has $50,000,000 par value convertible
debentures outstanding with a 40 to 1 conversion ratio. If the bonds are
currently trading at 110 and are above parity, CPU common must be trading:
A at 27.50
B at 27.49 or below
C at 27.51 or above
D at 44.00 - ✔✔B at 27.49 or below
Page 3 of 91
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION
NUMBER: 619652435. TERMS OF USE. PRIVACY STATEMENT.ALL RIGHTS RESERVED
, Step 1 is to determine the parity price of the stock. The bond is trading at 110,
which is $1,100. The bond is convertible into 40 shares: that's the 40 to 1
conversion ratio given in the question.
that at its current price of $1,100, the bond is WORTH MORE THAN the stock.
Therefore, the stock can't be AT $27.50, it must be at least 1 penny below
$27.50. So 40 shares at $27.49 (or below) is less than $1,100.
All of the below represent bond sweeteners with the exception of:
A a put option
B cum-warrants
C a call feature
D convertibility - ✔✔C a call feature
A sweetener is a feature that is good for investors. Owning a callable bond
exposes one to call risk, which is not considered desirable by bond investors.
Call risk is the risk of having one's portfolio altered when the issuer chooses to
call the bonds. Having a put feature, a conversion feature, or warrants attached
to a bond can be desirable and even highly profitable
Stabilizing a new stock issue
Page 4 of 91
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION
NUMBER: 619652435. TERMS OF USE. PRIVACY STATEMENT.ALL RIGHTS RESERVED
Questions with 100% Correct Answers
When discussing a corporation's capitalization, each of the below would be
included except:
A: non-voting class B preferred stock
B: subordinated debentures rated BB+ by Standard & Poor's
C: earned surplus
D: plant & equipment - ✔✔Plant and equipment
Capitalization includes Stockholders' Equity and Long-term Debt. Plant &
Equipment are Fixed Assets, which are assets purchased with the Capital raised
by the business but are not themselves considered Capital
Miami-Dade County currently has the following four GOs outstanding. All issues
possess a call feature and have coupons and maturities as shown below.
Assume all issues have similar principal amounts outstanding. In the event
interest rates decline, and the County plans to do a refunding of only one of the
four outstanding GOs, which issue would most likely be called?
Page 1 of 91
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION
NUMBER: 619652435. TERMS OF USE. PRIVACY STATEMENT.ALL RIGHTS RESERVED
,A :6.25s31 callable at 100
B 5.50s33 callable at 100½
C 4.65s34 callable at 101
DZr29 callable at 100 - ✔✔A :6.25s31 callable at 100
f you were in charge of finances for the county and you were considering paying
off only one of your debts, wouldn't it be the debt that's costing the county the
most (the highest interest rate)? In this scenario, the county will retire/call the
6.25% callable bonds because those are costing the county the most every year.
Also notice that those bonds have an added advantage - they are callable at
100, which means at Par, meaning there is no call 'premium' required to retire
them.
When viewing the latest quotes on T-bills, you note that the current quote on
the new 3 month Bills, 0.50 − 0.55, is somewhat higher than the quote on new 3
month Bills at the previous auction.
A T-bill prices have risen
B The yield curve is inverting
C The Fed is easing the money supply
Page 2 of 91
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION
NUMBER: 619652435. TERMS OF USE. PRIVACY STATEMENT.ALL RIGHTS RESERVED
,D T-bill discounts have increased - ✔✔D T-bill discounts have increased
T-bills are not quoted as a percentage of par, whereas notes and bonds are. Bill
quotes represent the percentage of Discount from Par Value at which banks and
dealers purchase T-bills at the Fed Auction. If you're told that this week's
quotes, which are discounts from par, are HIGHER than the discounts from last
week, that means T-Bill purchase prices have gotten LOWER -----we all know
that when department stores increase the DISCOUNT, the price in dollars gets
cheaper. It's the same with T-bills. For any of you who put answer A, it is wrong
because it says prices have gone up. When a discount gets higher/bigger, the
sale price goes down.
CPU Industries, Inc. (ticker symbol CPU) has $50,000,000 par value convertible
debentures outstanding with a 40 to 1 conversion ratio. If the bonds are
currently trading at 110 and are above parity, CPU common must be trading:
A at 27.50
B at 27.49 or below
C at 27.51 or above
D at 44.00 - ✔✔B at 27.49 or below
Page 3 of 91
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION
NUMBER: 619652435. TERMS OF USE. PRIVACY STATEMENT.ALL RIGHTS RESERVED
, Step 1 is to determine the parity price of the stock. The bond is trading at 110,
which is $1,100. The bond is convertible into 40 shares: that's the 40 to 1
conversion ratio given in the question.
that at its current price of $1,100, the bond is WORTH MORE THAN the stock.
Therefore, the stock can't be AT $27.50, it must be at least 1 penny below
$27.50. So 40 shares at $27.49 (or below) is less than $1,100.
All of the below represent bond sweeteners with the exception of:
A a put option
B cum-warrants
C a call feature
D convertibility - ✔✔C a call feature
A sweetener is a feature that is good for investors. Owning a callable bond
exposes one to call risk, which is not considered desirable by bond investors.
Call risk is the risk of having one's portfolio altered when the issuer chooses to
call the bonds. Having a put feature, a conversion feature, or warrants attached
to a bond can be desirable and even highly profitable
Stabilizing a new stock issue
Page 4 of 91
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION
NUMBER: 619652435. TERMS OF USE. PRIVACY STATEMENT.ALL RIGHTS RESERVED
