Series 7 Practice Final Exam 2025
Questions and Answers
All of the following are types of preferred stock EXCEPT:
A. Performance
B. Participating
C. Cumulative
D. Refundable - ANSWER✔✔-The best answer is D. There is no such thing as
refundable preferred stock. Participating preferred (also known as performance
preferred) allows the holder to receive additional dividend distributions from the issuer
if the issuer is having a good year. Cumulative preferred "accumulates" any unpaid
dividends. Before a common dividend may be paid, all accumulated dividends must be
paid to cumulative preferred shareholders.
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,If a customer does not give a broker his or her instructions, cost basis reporting on Form
1099-B for a stock holding where there have been multiple purchases at different times
is done on a:
A. FIFO basis
B. LIFO basis
C. Specific identification basis
D. Random selection basis - ANSWER✔✔-The best answer is A. Cost basis reporting to
the IRS is required on Form 1099-B. The Form includes the cost basis of the security, the
sale proceeds, and whether the holding period is short term or long term. If there are
multiple purchases of the stock position, absent customer instructions, FIFO is used to
report cost basis. If the customer gives instructions to the broker, then specific
identification can be used - which is beneficial if higher cost shares are selected to either
reduce capital gains or increase reported capital losses.
Municipal bond traders execute transactions in all of the following ways EXCEPT:
A. on the floor of recognized exchanges
B. with bank dealers in the over-the-counter market
C. with brokerage wire houses in the over-the-counter market
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 2
,D. with municipal broker's brokers - ANSWER✔✔-The best answer is A. Municipal
bonds are traded in the over-the-counter market - with bank dealers, other brokers, as
well as with municipal broker's brokers. They are not traded on national stock
exchanges.
Of the choices offered, the most actively traded option contract is the:
A. Standard and Poor's 100 Index option (OEX)
B. Major Market Index option (XMI)
C. Value Line Index option (VLE)
D. NASDAQ Index option (NDX) - ANSWER✔✔-The best answer is A. The Standard
and Poor's 100 option contract (OEX) trades on the Chicago Board Options Exchange
(CBOE) and is the most actively traded contract of the choices given. This was the first
broad based index option, introduced around 1983, and it quickly achieved "market
dominance." It is used extensively by institutional portfolio managers for "portfolio
insurance" (buy OEX puts) and to generate extra income in flat markets (sell OEX calls).
Also note that the CBOE, later on, introduced the SPX (Standard and Poor's 500 index
option), which has surpassed the trading volume of the OEX - but it is not given as a
choice!
Which statements are TRUE about over-the-counter transactions?
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 3
, I In a principal transaction, the customer is charged a mark-up or mark-down
II In an agency transaction, the customer is charged a commission
III In a principal transaction, the firm trades from its inventory account
IV In an agency transaction, the firm trades with other market makers
A. I and II only
B. III and IV only
C. I and IV only
D. I, II, III, IV - ANSWER✔✔-The best answer is D. In a principal transaction, a firm
trades into, or out of, its inventory account, charging the customer a mark-up or mark-
down that is fair and reasonable. In an agency transaction, the firm trades with another
market marker, charging the customer a fair and reasonable commission for finding the
best market.
Which of the following does not trade "flat" ?
A. Treasury Bills
B. Treasury STRIPS
C. Treasury Bonds
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 4
Questions and Answers
All of the following are types of preferred stock EXCEPT:
A. Performance
B. Participating
C. Cumulative
D. Refundable - ANSWER✔✔-The best answer is D. There is no such thing as
refundable preferred stock. Participating preferred (also known as performance
preferred) allows the holder to receive additional dividend distributions from the issuer
if the issuer is having a good year. Cumulative preferred "accumulates" any unpaid
dividends. Before a common dividend may be paid, all accumulated dividends must be
paid to cumulative preferred shareholders.
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 1
,If a customer does not give a broker his or her instructions, cost basis reporting on Form
1099-B for a stock holding where there have been multiple purchases at different times
is done on a:
A. FIFO basis
B. LIFO basis
C. Specific identification basis
D. Random selection basis - ANSWER✔✔-The best answer is A. Cost basis reporting to
the IRS is required on Form 1099-B. The Form includes the cost basis of the security, the
sale proceeds, and whether the holding period is short term or long term. If there are
multiple purchases of the stock position, absent customer instructions, FIFO is used to
report cost basis. If the customer gives instructions to the broker, then specific
identification can be used - which is beneficial if higher cost shares are selected to either
reduce capital gains or increase reported capital losses.
Municipal bond traders execute transactions in all of the following ways EXCEPT:
A. on the floor of recognized exchanges
B. with bank dealers in the over-the-counter market
C. with brokerage wire houses in the over-the-counter market
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 2
,D. with municipal broker's brokers - ANSWER✔✔-The best answer is A. Municipal
bonds are traded in the over-the-counter market - with bank dealers, other brokers, as
well as with municipal broker's brokers. They are not traded on national stock
exchanges.
Of the choices offered, the most actively traded option contract is the:
A. Standard and Poor's 100 Index option (OEX)
B. Major Market Index option (XMI)
C. Value Line Index option (VLE)
D. NASDAQ Index option (NDX) - ANSWER✔✔-The best answer is A. The Standard
and Poor's 100 option contract (OEX) trades on the Chicago Board Options Exchange
(CBOE) and is the most actively traded contract of the choices given. This was the first
broad based index option, introduced around 1983, and it quickly achieved "market
dominance." It is used extensively by institutional portfolio managers for "portfolio
insurance" (buy OEX puts) and to generate extra income in flat markets (sell OEX calls).
Also note that the CBOE, later on, introduced the SPX (Standard and Poor's 500 index
option), which has surpassed the trading volume of the OEX - but it is not given as a
choice!
Which statements are TRUE about over-the-counter transactions?
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 3
, I In a principal transaction, the customer is charged a mark-up or mark-down
II In an agency transaction, the customer is charged a commission
III In a principal transaction, the firm trades from its inventory account
IV In an agency transaction, the firm trades with other market makers
A. I and II only
B. III and IV only
C. I and IV only
D. I, II, III, IV - ANSWER✔✔-The best answer is D. In a principal transaction, a firm
trades into, or out of, its inventory account, charging the customer a mark-up or mark-
down that is fair and reasonable. In an agency transaction, the firm trades with another
market marker, charging the customer a fair and reasonable commission for finding the
best market.
Which of the following does not trade "flat" ?
A. Treasury Bills
B. Treasury STRIPS
C. Treasury Bonds
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 4
