Exam 2 MOCK - Series 7 2025
Questions and Answers
New issue municipal bond orders are allocated according to priorities the syndicate
sets in advance. The MSRB requires syndicates to establish priority allocation
provisions for orders. Which of the following is the most common priority?
A)
Group net, presale, designated, member
B)
Member, designated, presale, group net
C)
Presale, group net, designated, member
D)
Presale, designated, group net, member - ANSWER✔✔-C- Remember our abbreviation:
PGDM (Pro Golfers Don't Miss) and that will get you the correct answer to any of these
order allocation questions.
A direct participation program (DPP), organized as a limited partnership, must avoid at
least two characteristics of a corporation. Which two characteristics are the easiest to
avoid?
A)
Continuity of life and decentralized management
B)
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 1
,Continuity of life and freely transferable interests
C)
Freely transferable interests and centralized management
D)
Centralized management and continuity of life - ANSWER✔✔-B-- Continuity of life and
freely transferable interests are the easiest to avoid. The limited partnership is formed to
exist for a limited time, and general partner (GP) must approve any transfer of interests.
Centralized management is the hardest characteristics to avoid because management of
the program is the responsibility of the general partner (GP), so management is
centralized.
A registered representative of a FINRA member firm has developed a LinkedIn
friendship with a registered investment adviser. This has resulted in the investment
adviser directing transactions for many of their clients to this representative's broker-
dealer. The broker-dealer is promoting an all-day seminar with presentations to be
delivered by a number of outstanding economists and securities analysts. The seminar
location is in a hotel ballroom down the street from the member firm's office. The firm
has invited the investment adviser to attend as its guest. That location requires the
adviser to fly in the night before and stay at the hotel. As the broker-dealer's guest,
which of the following expenses are reimbursable by the broker-dealer without
violating the safe harbor provisions of Section 28(e)?
C)
The registration fees for the seminar
D)
The registration fees for the seminar plus the hotel room for the night - ANSWER✔✔-C-
-Under the safe harbor provisions of Section 28(e) of the Securities Exchange Act of
1934, broker-dealers are permitted to extend seminar invitations to investment advisers
with whom they do or hope to do business. The only expense reimbursable by the
broker-dealer is the fee to attend the seminar.
A customer purchases 200 shares of Pyrrhic Trophy Manufacturing Corporation
(PTMC) at $105 per share. With the stock at $122 per share, the customer sells one
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 2
,PTMC Jan $120 call option for 3.50. One week prior to expiration, PTMC is selling for
$132 per share, and the customer is assigned an exercise notice. The tax consequence of
this is
A)
a capital gain of $1,500.
B)
a capital gain of $2,050.
C)
a capital gain of $1,850.
D)
a capital gain of $3,700. - ANSWER✔✔-C-- Even though the investor purchased 200
shares, only one call option was written. When exercised, it is only 100 shares that are
sold. The numbers are: Bought 100 shares for $10,500. Sold them at the strike price of
120 (100 times $120) bringing in $12,000. That is a capital gain of $1,500. In addition
there is the $350 premium received when the option was sold. That makes the total
$1,850.
One of your customers owns 100 shares of GTS common stock. The purchase was made
two years ago at a price of $51 per share. GTS has recently declared a 3:2 stock split. At
the customer's request, as soon as the new shares are in the account, you sell them and
$2,000 from the proceeds of the sale is credited to the customer's account. Based on this
information, the tax impact of this transaction is
A)
a long-term capital loss of $1,400.
B)
a long-term capital loss of $1,333 and a short-term capital loss of $667.
C)
a short-term capital gain of $300.
D)
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 3
, a long-term capital gain of $300. - ANSWER✔✔-D--Immediately after the stock split, the
total investment of the initial position remains unchanged at $5,100 (100 shares at $51
per share). After the stock split, the customer owns 150 shares (3/2 times 100 = 150
shares). Therefore, the adjusted cost basis per share is $34 ($5,100 divided by 150
shares). Those 50 shares were sold for $2,000 and have a cost basis of $1,700 ($34 times
50). That is a profit of $300. Alternatively, you could say that 50 shares sold for $2,000
represents a selling price of $40 per share ($2,000 divided by 50 shares), which is a $6
per-share profit ($40 minus the $34 cost basis). Fifty shares times $6 equals a profit of
$300. The gain is long-term because the holding period of securities received through a
stock split (or stock dividend) is that of the original purchase. If you have to guess, or
are running out of time, when you see two identical numbers with the only difference
being short- or long-term gain, in almost all questions, one of those two is the correct
answer. Now you have a 50% change of guessing correctly and, if you remember that
the holding period always begins with the initial purchase, then the odds are 100% in
your favor.
An investor purchased 100 shares of a stock three years ago at $38 per share.
Disappointed with the stock's performance, the investor sells it for $35 per share. Two
weeks later, after the company announced higher-than-expected earnings, the investor
purchased 100 shares at $44 per share. When this investor decides to sell the newly
purchased shares, the cost basis will be
A)
$44 per share.
B)
$38 per share.
C)
$41 per share.
D)
$47 per share. - ANSWER✔✔-D--This is a wash sale situation. Selling a stock at a loss
and repurchasing it within 30 days "washes" out the loss for current tax purposes. The
loss, in this case $3 per share, is added to the cost of the repurchased stock. Thus, $44
plus $3 equals a new cost basis of $47 per share.
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 4
Questions and Answers
New issue municipal bond orders are allocated according to priorities the syndicate
sets in advance. The MSRB requires syndicates to establish priority allocation
provisions for orders. Which of the following is the most common priority?
A)
Group net, presale, designated, member
B)
Member, designated, presale, group net
C)
Presale, group net, designated, member
D)
Presale, designated, group net, member - ANSWER✔✔-C- Remember our abbreviation:
PGDM (Pro Golfers Don't Miss) and that will get you the correct answer to any of these
order allocation questions.
A direct participation program (DPP), organized as a limited partnership, must avoid at
least two characteristics of a corporation. Which two characteristics are the easiest to
avoid?
A)
Continuity of life and decentralized management
B)
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 1
,Continuity of life and freely transferable interests
C)
Freely transferable interests and centralized management
D)
Centralized management and continuity of life - ANSWER✔✔-B-- Continuity of life and
freely transferable interests are the easiest to avoid. The limited partnership is formed to
exist for a limited time, and general partner (GP) must approve any transfer of interests.
Centralized management is the hardest characteristics to avoid because management of
the program is the responsibility of the general partner (GP), so management is
centralized.
A registered representative of a FINRA member firm has developed a LinkedIn
friendship with a registered investment adviser. This has resulted in the investment
adviser directing transactions for many of their clients to this representative's broker-
dealer. The broker-dealer is promoting an all-day seminar with presentations to be
delivered by a number of outstanding economists and securities analysts. The seminar
location is in a hotel ballroom down the street from the member firm's office. The firm
has invited the investment adviser to attend as its guest. That location requires the
adviser to fly in the night before and stay at the hotel. As the broker-dealer's guest,
which of the following expenses are reimbursable by the broker-dealer without
violating the safe harbor provisions of Section 28(e)?
C)
The registration fees for the seminar
D)
The registration fees for the seminar plus the hotel room for the night - ANSWER✔✔-C-
-Under the safe harbor provisions of Section 28(e) of the Securities Exchange Act of
1934, broker-dealers are permitted to extend seminar invitations to investment advisers
with whom they do or hope to do business. The only expense reimbursable by the
broker-dealer is the fee to attend the seminar.
A customer purchases 200 shares of Pyrrhic Trophy Manufacturing Corporation
(PTMC) at $105 per share. With the stock at $122 per share, the customer sells one
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 2
,PTMC Jan $120 call option for 3.50. One week prior to expiration, PTMC is selling for
$132 per share, and the customer is assigned an exercise notice. The tax consequence of
this is
A)
a capital gain of $1,500.
B)
a capital gain of $2,050.
C)
a capital gain of $1,850.
D)
a capital gain of $3,700. - ANSWER✔✔-C-- Even though the investor purchased 200
shares, only one call option was written. When exercised, it is only 100 shares that are
sold. The numbers are: Bought 100 shares for $10,500. Sold them at the strike price of
120 (100 times $120) bringing in $12,000. That is a capital gain of $1,500. In addition
there is the $350 premium received when the option was sold. That makes the total
$1,850.
One of your customers owns 100 shares of GTS common stock. The purchase was made
two years ago at a price of $51 per share. GTS has recently declared a 3:2 stock split. At
the customer's request, as soon as the new shares are in the account, you sell them and
$2,000 from the proceeds of the sale is credited to the customer's account. Based on this
information, the tax impact of this transaction is
A)
a long-term capital loss of $1,400.
B)
a long-term capital loss of $1,333 and a short-term capital loss of $667.
C)
a short-term capital gain of $300.
D)
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 3
, a long-term capital gain of $300. - ANSWER✔✔-D--Immediately after the stock split, the
total investment of the initial position remains unchanged at $5,100 (100 shares at $51
per share). After the stock split, the customer owns 150 shares (3/2 times 100 = 150
shares). Therefore, the adjusted cost basis per share is $34 ($5,100 divided by 150
shares). Those 50 shares were sold for $2,000 and have a cost basis of $1,700 ($34 times
50). That is a profit of $300. Alternatively, you could say that 50 shares sold for $2,000
represents a selling price of $40 per share ($2,000 divided by 50 shares), which is a $6
per-share profit ($40 minus the $34 cost basis). Fifty shares times $6 equals a profit of
$300. The gain is long-term because the holding period of securities received through a
stock split (or stock dividend) is that of the original purchase. If you have to guess, or
are running out of time, when you see two identical numbers with the only difference
being short- or long-term gain, in almost all questions, one of those two is the correct
answer. Now you have a 50% change of guessing correctly and, if you remember that
the holding period always begins with the initial purchase, then the odds are 100% in
your favor.
An investor purchased 100 shares of a stock three years ago at $38 per share.
Disappointed with the stock's performance, the investor sells it for $35 per share. Two
weeks later, after the company announced higher-than-expected earnings, the investor
purchased 100 shares at $44 per share. When this investor decides to sell the newly
purchased shares, the cost basis will be
A)
$44 per share.
B)
$38 per share.
C)
$41 per share.
D)
$47 per share. - ANSWER✔✔-D--This is a wash sale situation. Selling a stock at a loss
and repurchasing it within 30 days "washes" out the loss for current tax purposes. The
loss, in this case $3 per share, is added to the cost of the repurchased stock. Thus, $44
plus $3 equals a new cost basis of $47 per share.
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 4
