Series 7 Mock Exam #2 2025/2026 Exam
Questions and Correct Answers | New
Update
If a customer buys 100 shares of stock and writes one out-of-the-money call
against her long position, the breakeven point is
A) the cost of stock purchased less premium.
B) the cost of stock purchased plus premium.
C) the strike price less premium.
D) the strike price plus premium. - 🧠 ANSWER ✔✔A) the cost of stock purchased
less premium.
,Explanation: When the investor owns stock and sells a call, the call is covered.
Breakeven is computed by subtracting the premium from the stock's purchase
price.
Under SEC Rule 10b-13, a company that is the target of a tender offer must
provide its shareholders with a statement indicating acceptance or rejection of the
offer within how many business days of the announcement?
A) 5
B) 10
C) 15
D) 20 - 🧠 ANSWER ✔✔B) 10
Explanation: Once a tender offer is announced, the target company, within 10
business days of the announcement, must provide its shareholders with a statement
indicating acceptance or rejection of the offer and the reasons for the position
taken.
A firm must provide a risk disclosure document to a customer before opening
which of the following accounts?
, 3
A) Partnership
B) Custodial
C) Margin
D) Transfer on death - 🧠 ANSWER ✔✔C) Margin
Explanation: All customers opening margin accounts must receive a risk disclosure
document describing the risks associated with trading on margin (e.g., that a
customer could lose more than the initial investment, or that the firm could sell out
securities in the account to meet a maintenance call without providing prior notice
to the customer). This document must also be provided to customers on an annual
basis.
Variable-rate municipal bonds are subject to all of the following risks except:
A) liquidity.
B) interest rate.
C) market.
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
PRIVACY STATEMENT. ALL RIGHTS RESERVED
, D) default. - 🧠 ANSWER ✔✔B) interest rate
Explanation: A variable-rate bond is one whose coupon is adjusted periodically
(semiannually or annually) to reflect current interest rates. Therefore, if rates rise
and force prices down, the coupon on a variable-rate bond will be adjusted upward,
thereby tending to keep the bond's price at or near par. Therefore, no interest rate
risk is associated with these bonds. However, if rates fall, the coupon will be
adjusted downward, keeping the bond's price at or around par. Normally, a fall in
rates will force prices up, but not with variable-rate bonds.
The City of Columbus issued a 20-year general obligation bond at a price of 50.
An original purchaser sold the bond at 75 after holding it for 7 years. For tax
purposes, that sale generated:
A) a $250 capital gain.
B) a $75 capital gain.
C) no gain or loss.
D) a $25 capital gain. - 🧠 ANSWER ✔✔B) a $75 capital gain
Questions and Correct Answers | New
Update
If a customer buys 100 shares of stock and writes one out-of-the-money call
against her long position, the breakeven point is
A) the cost of stock purchased less premium.
B) the cost of stock purchased plus premium.
C) the strike price less premium.
D) the strike price plus premium. - 🧠 ANSWER ✔✔A) the cost of stock purchased
less premium.
,Explanation: When the investor owns stock and sells a call, the call is covered.
Breakeven is computed by subtracting the premium from the stock's purchase
price.
Under SEC Rule 10b-13, a company that is the target of a tender offer must
provide its shareholders with a statement indicating acceptance or rejection of the
offer within how many business days of the announcement?
A) 5
B) 10
C) 15
D) 20 - 🧠 ANSWER ✔✔B) 10
Explanation: Once a tender offer is announced, the target company, within 10
business days of the announcement, must provide its shareholders with a statement
indicating acceptance or rejection of the offer and the reasons for the position
taken.
A firm must provide a risk disclosure document to a customer before opening
which of the following accounts?
, 3
A) Partnership
B) Custodial
C) Margin
D) Transfer on death - 🧠 ANSWER ✔✔C) Margin
Explanation: All customers opening margin accounts must receive a risk disclosure
document describing the risks associated with trading on margin (e.g., that a
customer could lose more than the initial investment, or that the firm could sell out
securities in the account to meet a maintenance call without providing prior notice
to the customer). This document must also be provided to customers on an annual
basis.
Variable-rate municipal bonds are subject to all of the following risks except:
A) liquidity.
B) interest rate.
C) market.
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
PRIVACY STATEMENT. ALL RIGHTS RESERVED
, D) default. - 🧠 ANSWER ✔✔B) interest rate
Explanation: A variable-rate bond is one whose coupon is adjusted periodically
(semiannually or annually) to reflect current interest rates. Therefore, if rates rise
and force prices down, the coupon on a variable-rate bond will be adjusted upward,
thereby tending to keep the bond's price at or near par. Therefore, no interest rate
risk is associated with these bonds. However, if rates fall, the coupon will be
adjusted downward, keeping the bond's price at or around par. Normally, a fall in
rates will force prices up, but not with variable-rate bonds.
The City of Columbus issued a 20-year general obligation bond at a price of 50.
An original purchaser sold the bond at 75 after holding it for 7 years. For tax
purposes, that sale generated:
A) a $250 capital gain.
B) a $75 capital gain.
C) no gain or loss.
D) a $25 capital gain. - 🧠 ANSWER ✔✔B) a $75 capital gain
