Series 7 Final Exam 1 UPDATED Exam
Questions and CORRECT Answers
To compute equity in a margin account with both short and long positions, the formula is:
A The long market value plus the credit balance minus the short market value minus the debit
balance
B The long market value minus the credit balance minus the short market value minus the debit
balance
C The long market value plus the debit balance minus the short market value minus the credit
balance
D The long market value plus the credit balance plus the debit balance minus the short market
value - CORRECT ANSWER - A The long market value plus the credit balance minus the
short market value minus the debit balance
A company, which has investors with registration rights, has recently conducted an initial public
offering. Typically, how long must these investors wait to sell their shares after the IPO?
A One year
B 180 days
C Two years
D Three years - CORRECT ANSWER - B 180 days
A corporation has a significant amount of cash on hand and is seeking your advice regarding
income-producing equity investments. Which of the following investments pay a dividend, but is
NOT eligible for the corporate dividend exclusion?
A Common stock
B Preferred stock
C Equity mutual funds
D Real estate investment trusts (REITs) - CORRECT ANSWER - D Real estate investment
trusts (REITs)
,An investor wants to buy a foreign stock that's trading at $540 per share and paying a $12.50
annual dividend. The investor's registered representative instead suggests purchasing an ADR
which represents 10% of the value of the foreign stock. If the customer commits to buying 500
shares, what's his cost basis and his first semiannual dividend from the ADR?
A Cost basis of $270,000 and $6,250 in semiannual dividends
B Cost basis of $27,000 and $625 in semiannual dividends
C Cost basis of $270,000 and $3,125 in semiannual dividends
D Cost basis of $27,000 and $312.50 in semiannual dividends - CORRECT ANSWER -D
Cost basis of $27,000 and $312.50 in semiannual dividends
(The ADR per share value is $54 ($540 x 10%) and the annual dividend is $1.25 ($12.50 x 10%).
Since the customer gets semiannual dividends, the $625 will be split in half)
In a Delivery Versus Payment (DVP) and Receive Versus Payment (RVP) account, which of the
following is required?
A Settlement to occur on a regular-way basis
B Approval by FINRA to open the account
C A form identifying the third-party agent for the client
D Physical delivery of securities - CORRECT ANSWER - C A form identifying the third-
party agent for the client
Portfolio margin permits an investor to:
A Avoid margin deficiencies
B Assume greater leverage
C Trade directly with market makers
D Trade without depositing funds until the securities decline in value - CORRECT
ANSWER - B Assume greater leverage
Two similar companies issue bonds at the same time. One company issues convertible bonds,
while the other issues non-convertible bonds. Which of the following statements is TRUE?
A The convertible bonds will offer a higher coupon rate.
B The non-convertible bonds will offer a lower coupon rate.
, C The convertible bonds will have a higher current yield.
D The non-convertible bonds will probably have a higher yield to maturity. - CORRECT
ANSWER - D The non-convertible bonds will probably have a higher yield to maturity.
(Since convertible bonds pay less interest, their current yield and YTM will also be lower)
A registered representative (RR) sent promotional material to 20 prospective retail clients using a
social media site. Then, 20 days later, the RR sends the same material to 30 institutional
investors that are not existing clients of the broker-dealer. Under FINRA rules, the promotional
material is:
A Institutional communication
B Prohibited
C Correspondence
D Retail communication - CORRECT ANSWER - C Correspondence
(Retail communication is sent to over 25 retail investors in a 30-day period)
OTCQX companies have all of the following characteristics, EXCEPT:
A They file reports with the SEC
B They provide timely disclosure of material news to investors
C They're listed on a U.S. registered stock exchange
D They may be introduced by a third party, such as a bank or investment firm - CORRECT
ANSWER - C They're listed on a U.S. registered stock exchange
(OTCQX is an over-the-counter marketplace for US and foreign issuers)
An accumulation unit in a variable annuity contract is:
A An accounting measure that's used to determine the contract owner's interest in the separate
account
B An accounting measure that's used to determine payments to the owner of the variable annuity
C The same as a shareholder's ownership interest in a mutual fund
D The same as the insurance company's profit from the separate account - CORRECT
ANSWER - A An accounting measure that's used to determine the contract owner's interest
in the separate account
Questions and CORRECT Answers
To compute equity in a margin account with both short and long positions, the formula is:
A The long market value plus the credit balance minus the short market value minus the debit
balance
B The long market value minus the credit balance minus the short market value minus the debit
balance
C The long market value plus the debit balance minus the short market value minus the credit
balance
D The long market value plus the credit balance plus the debit balance minus the short market
value - CORRECT ANSWER - A The long market value plus the credit balance minus the
short market value minus the debit balance
A company, which has investors with registration rights, has recently conducted an initial public
offering. Typically, how long must these investors wait to sell their shares after the IPO?
A One year
B 180 days
C Two years
D Three years - CORRECT ANSWER - B 180 days
A corporation has a significant amount of cash on hand and is seeking your advice regarding
income-producing equity investments. Which of the following investments pay a dividend, but is
NOT eligible for the corporate dividend exclusion?
A Common stock
B Preferred stock
C Equity mutual funds
D Real estate investment trusts (REITs) - CORRECT ANSWER - D Real estate investment
trusts (REITs)
,An investor wants to buy a foreign stock that's trading at $540 per share and paying a $12.50
annual dividend. The investor's registered representative instead suggests purchasing an ADR
which represents 10% of the value of the foreign stock. If the customer commits to buying 500
shares, what's his cost basis and his first semiannual dividend from the ADR?
A Cost basis of $270,000 and $6,250 in semiannual dividends
B Cost basis of $27,000 and $625 in semiannual dividends
C Cost basis of $270,000 and $3,125 in semiannual dividends
D Cost basis of $27,000 and $312.50 in semiannual dividends - CORRECT ANSWER -D
Cost basis of $27,000 and $312.50 in semiannual dividends
(The ADR per share value is $54 ($540 x 10%) and the annual dividend is $1.25 ($12.50 x 10%).
Since the customer gets semiannual dividends, the $625 will be split in half)
In a Delivery Versus Payment (DVP) and Receive Versus Payment (RVP) account, which of the
following is required?
A Settlement to occur on a regular-way basis
B Approval by FINRA to open the account
C A form identifying the third-party agent for the client
D Physical delivery of securities - CORRECT ANSWER - C A form identifying the third-
party agent for the client
Portfolio margin permits an investor to:
A Avoid margin deficiencies
B Assume greater leverage
C Trade directly with market makers
D Trade without depositing funds until the securities decline in value - CORRECT
ANSWER - B Assume greater leverage
Two similar companies issue bonds at the same time. One company issues convertible bonds,
while the other issues non-convertible bonds. Which of the following statements is TRUE?
A The convertible bonds will offer a higher coupon rate.
B The non-convertible bonds will offer a lower coupon rate.
, C The convertible bonds will have a higher current yield.
D The non-convertible bonds will probably have a higher yield to maturity. - CORRECT
ANSWER - D The non-convertible bonds will probably have a higher yield to maturity.
(Since convertible bonds pay less interest, their current yield and YTM will also be lower)
A registered representative (RR) sent promotional material to 20 prospective retail clients using a
social media site. Then, 20 days later, the RR sends the same material to 30 institutional
investors that are not existing clients of the broker-dealer. Under FINRA rules, the promotional
material is:
A Institutional communication
B Prohibited
C Correspondence
D Retail communication - CORRECT ANSWER - C Correspondence
(Retail communication is sent to over 25 retail investors in a 30-day period)
OTCQX companies have all of the following characteristics, EXCEPT:
A They file reports with the SEC
B They provide timely disclosure of material news to investors
C They're listed on a U.S. registered stock exchange
D They may be introduced by a third party, such as a bank or investment firm - CORRECT
ANSWER - C They're listed on a U.S. registered stock exchange
(OTCQX is an over-the-counter marketplace for US and foreign issuers)
An accumulation unit in a variable annuity contract is:
A An accounting measure that's used to determine the contract owner's interest in the separate
account
B An accounting measure that's used to determine payments to the owner of the variable annuity
C The same as a shareholder's ownership interest in a mutual fund
D The same as the insurance company's profit from the separate account - CORRECT
ANSWER - A An accounting measure that's used to determine the contract owner's interest
in the separate account
