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Series 7 > Marked Test 1 > Flashcards

Marked Test 1 Flashcards

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Series 7 Top-off Exam flashcards
0
Q

Transactions in Nasdaq stocks must be reported by:

A

The seller in 30 seconds

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1
Q

Electronic communication networks (ECNs)

A

Trading systems designed to match buyers with sellers of securities, executing trades automatically

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2
Q

What secrurities are likely to be subject to a witholding tax?

A

Yakee bonds and ADRs

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3
Q

Real-Time Transaction Reporting System (RTRS)

A

The system used to report municipal securitities

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4
Q

Corporate Dividend Tax Rule:

A

Owner Ship < 20% -> 70% of Dividends Excluded

Owner Ship >= 20% -> 80% of Dividends Excluded

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5
Q

A CMO is suitable for an investor seeking:

a) Monthly tax-free income, assuming he does need the principal returned at maturity
b) Quarterly income, assuming he does not need the principal returned at maturity
c) Monthly income, assuming he needs the entire principal returned at maturity
d) Monthly income, assuming he does not need the entire principal returned at maturity

A

D: Monthly income, assuming he does not need the entire principal returned at maturity

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6
Q

A municipal bond will be accepted for delivery out of legal opinion if it is identified as:

a) In defailt
b) Registered
c) Mutilated
d) Ex-legal

A

D: Ex-legal

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7
Q

Which of the following positions/strategies is NOT bullish?

a) A married put
b) A short put
c) A long 40 call and a short 50 call
d) Writing a straddle

A

D: Writing a stradle

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8
Q

Types of municipal bonds and qualities:

A

General Obligation (GO) / Revenue Bond

Source of payment: Municipality taxes / Projects
Risk: less / more
Yield: lower / higher
Voter approval: yes / feasibility study

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9
Q

Which two of the following events may be reasons for a revenue bond issue to be called?

I) There is a change in the tax status of the issuer
II) Surplus funds are not available
III) Interest rates rise dramatically
IV) The facility is destroyed by fire

A

I) There is a change in the tax status of the issuer

IV) The facility is destroyed by fire

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10
Q

Which is true about periodic payment variable annuities?

a) A client’s number of annuity units never changes
b) A client’s number of accumulation units never changes
c) Annuity contracts never have a beneficiary
d) The monthly payout is fixed by the inflation index

A

A) A client’s number of annuity units never changes

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11
Q

Process to qualify as a municipal representative

A

Pass a qualifying exam and serve a 90-day apprenticeship. However, the person may only act as an apprentice for a maximum of 180 days.

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12
Q

The registration provisions of the 1933 Act applies to what securities?

A

Securities listed on the NYSE or Nasdaq

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13
Q

The anitfraud provisions of the 1933 Act applies to what securities?

A

All securities, even those exempt from registration

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14
Q

Which of the following investors would be LEAST suitable for an oil and gas direct participation program (DPP)?

a) An investor in the highest federal tax bracket
b) A retired investor who is in the highest federal tax bracket
c) An investor who is concerned about the alternative minimum tax
d) An investor who recently inherited $5,000,000

A

c) An investor who is concerned about the alternative minimum tax

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15
Q

Which of the following is NOT one of The Bond Buyer’s indices?

a) The average yield on 25 revenue bonds with 30-year maturities
b) The average yield on 20 selected municipal bonds with 20-year maturities
c) The average yield on 11 selected municipal bonds with 20-year maturities
d) The total of all new issues scheduled to be sold during the upcoming 30 days

A

d) The total of all new issues scheduled to be sold during the upcoming 30 days

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16
Q

Which TWO of the following statements are TRUE concerning Section 457 plans?

I) These plans are state-sponsored and used to fund higher education expenses
II) These plans are used to fund retirement
III) These plans grow tax-deferred
IV) These plans grow tax-free

A

II) These plans are used to fund retirement

III) These plans grow tax-deferred

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17
Q

What is a Section 457 plan?

A

A type of qualified retirement plan used by many public sector workers. 457 plans grow on a tax-deferred basis and are generally subject to the same contribution limits as 401(k) and 403(b) plans.

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18
Q

A municipal bond swap may be executed to:

I) Establish a loss for tax purposes
II) Increase cash flow
III) Improve maturities
IV) Improve yields

A

I, II, III, and IV

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19
Q

A put option may be written in a cash account if the investor:

a) Is long the underlying security in the account
b) Is short the underlying security in the account
c) Has an escrow receipt for the underlying security
d) Has a cash balance in the account equal to the total exercise value of the contract

A

d) Has a cash balance in the account equal to the total exercise value of the contract

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20
Q

Long-term certificates of deposit (CDs) have which of the following characteristics?

a) They may only be sold by broker-dealers that are subsidiaries of banks
b) They are considered risk-free investments
c) They may be sold prior to maturity at a price that is different from the client’s original cost
d) They are not subject to interest-rate risk since the principal is insured by the FDIC

A

c) They may be sold prior to maturity at a price that is different from the client’s original cost

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21
Q

How can a company pay a dividend in the period it had a net loss?

A

Cash dividends are paid out of retained earnings or retained earnings from previous years which are part of shareholders’ equity.

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22
Q

Which of the following factors is LEAST important when recommending a long-term brokered CD to a client?

a) The CD was issued by a bank located in a different state from where the client lives
b) The CD has a feature in which the interest rate is based on a percentage increase in an equity index
c) The client will be purchasing the CD in a retirement account
d) The firm may make a market in this CD, but is not obligated to do so

A

a) The CD was issued by a bank located in a different state from where the client lives

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23
Q

The Modified Accelerated Cost Recovery System (MACRS)

A

Method that may be used to depreciate an asset. It allows for larger deductions during the earlier life of an asset when compared to the straight-line method of depreciation.

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24
Q

Simplified employee pension plan (SEP IRA)

A

Funded by employer contributions only. This is different than for Keogh plans, which do allow for employees to make nondeductible contributions to their own account.

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25
Q

Custodian Bank

A

The custodian bank is responsible for the safekeeping of the securities owned by a mutual fund. The custodian bank has no responsibility relating to the management of the fund’s portfolio.

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26
Q

Foreign currency spot transactions normally settle in:

a) One business day
b) Two business days
c) Three business days
d) Five business days

A

b) Two business days

27
Q

A Treasury bond has increased in value from 98.4 to 98.8. The bond has increased by:

a) $.40 per $1,000 par value
b) $.50 per $1,000 par value
c) $1.25 per $1,000 par value
d) $5.00 per $1,000 par value

A

c) $1.25 per $1,000 par value

28
Q

The purchaser of a variable life insurance policy bears which of the following risks?

a) The death benefit may fall to zero due to poor market performance
b) The policy may have no cash value if the separate account performance is negative
c) The insurance company may increase the premiums if the investment performance of the separate account is poor
d) The increasing cost of doing business may force the insurance company to raise expense charges against the separate account

A

b) The policy may have no cash value if the separate account performance is negative

29
Q

Accrued Interest Formula (Corporates, Municipals, and Government Agencies)

A

= (Principal x Rate x Days of Interest) / 360

30
Q

How often must brokerage firms send customer statements for their margin accounts?

A

Brokerage firms send customer statements monthly for accounts with activity during that month. For inactive accounts, statements must be sent at least quarterly.

31
Q

On September 14, a customer purchases an ABC December 60 call and sells an ABC November 60 call. The customer:

I) Has engaged in a debit spread
II) Has engaged in a credit spread
III) Wants the spread to widen
IV) Wants the spread to narrow

A

I) Has engaged in a debit spread

III) Wants the spread to widen

32
Q

A customer opens a new margin account and buys 100 shares of XYZ Corporation at $40 per share. She then writes a call option against the position and receives a $2 premium. The customer must deposit cash in the account of:

a) $1,800
b) $1,900
c) $2,000
d) $2,100

A

a) $1,800

33
Q

Why does a defined benefit plan usually not invest in municipal bonds?

A

A defined benefit plan is a type of pension fund. Pension funds and other tax-deferred accounts would not benefit from the tax exemption provided by municipal bonds. Exception: Build America Bonds

34
Q

A sales breakpoint of a mutual fund is…

A

The minimum dollar amount (not the share amount) of a purchase of a mutual fund where a volume discount is given.

35
Q

What is the maximum total compensation of the gross proceeds of the offering in a limited partnership including all items of compensation including trailing commissions?

A

10%

36
Q

What is the minimum maintenance requirements for stocks trading under $5?

A

$2.50 per share or 100% of the market value, whichever is greater, applies.

37
Q

Eurodollars

A

U.S. dollars on deposit in foreign banks, not just in Europe.

38
Q

A registered options principal (ROP) must review:

I) Retail communication concerning options
II) General options prospecting letters
III) Option seminar transcripts
IV) Allocation of exercise notices

A

I, II, III, IV

39
Q

Which of the following terms are synonymous?

a) Net asset value and offering price
b) Selling price and bid price
c) Net asset value and redemption price
d) Bid price and management fee

A

c) Net asset value and redemption price

40
Q

What steps must be taken after a registered representative recommends the purchase of a variable annuity before the application is submitted to the issuing insurance company?

A

The RR must document and sign the recommendation before forwarding the application to the Office of Supervisory Jurisdiction (OSJ) of the member firm. The principal at the OSJ reviews the application to determine suitability. The principal must approve or reject the application within 7 business days of receipt and must document and sign the approval or rejection.

41
Q

The major disadvantage to a limited partner in a DPP is:

a) Lack of control
b) Lack of liquidity
c) Flow through of income and expense
d) Limited liability

A

b) Lack of liquidity

42
Q

An investor owns $10,000 worth of XYZ Corporation convertible bonds that are callable at 102. The bonds are currently selling in the market at 103. If the corporation calls the bonds at the call price, the investor will receive:

a) $10,000
b) $10,200
c) $10,300
d) $10,500

A

b) $10,200

43
Q

The bond with the most interest-rate risk or price volatility is the one with…

A

The longest maturity and lowest coupon.

44
Q

What does advance refunding mean?

A

Proceeds from the sale of the new bond issue will be put in an escrow account to retire the existing bond issue

45
Q

When must a brokerage firm deliver a risk disclosure document to a customer?

A

A brokerage firm must deliver a risk disclosure document to a customer at or prior to the account being approved for options trading.

46
Q

Additional Bonds Test

A

Sets a minimum level of coverage of debt service for interest and principal for all outstanding bonds and for future debt. Thus, it protects original bondholders against the dilution of the debt service coverage.

47
Q

The purchase of a new issue prior to settlement with the issuer can BEST be described as a:

a) Subject or workout transaction
b) When-issued transaction
c) Seller’s option contract
d) Violation of the Securities Act of 1933

A

b) When-issued transaction

48
Q

A secondary market exists for:

a) Dealer-placed commercial paper
b) Federal funds
c) Repurchase agreements
d) U.S. savings bonds

A

a) Dealer-placed commercial paper

49
Q

A double-barreled municipal bond is backed by the:

A

Revenues of a project and taxes of a municipality

50
Q

When an institutional investor such as a mutual fund buys stock from the portfolio of an insurance company (another institution), it is considered a trade executed in…

A

Fourth market

51
Q

A variable annuity would be MOST suitable for which of the following customers?

a) A client in a high tax bracket who is purchasing the annuity for his spouse’s retirement needs
b) A client in a high tax bracket who is purchasing the annuity for short-term liquidity needs
c) A client who is purchasing the annuity in a 401(k) for his retirement needs
d) A client who is purchasing the annuity in order to have the funds available by the age of 50

A

a) A client in a high tax bracket who is purchasing the annuity for his spouse’s retirement needs

52
Q

A customer has purchased 10 ABC January 50 calls, paying a $2 premium and 10 ABC January 50 puts, paying a $2 premium. The market price of ABC stock is $50 per share. The buyer of these 10 straddles will need to deposit:

a) $1,000
b) $2,000
c) $4,000
d) $10,000

A

c) $4,000

53
Q

When pricing a bond, what information is NOT required?

a) The coupon rate
b) The maturity date
c) The settlement date
d) The number of bond years

A

d) The number of bond years

54
Q

Which of the following settlement dates does not conform to standard industry procedures?

a) Preferred stock settling in 3 business days
b) Government securities settling the next business day
c) Municipal bonds settling in 3 business days
d) Options settling in 3 business days

A

d) Options settling in 3 business days

55
Q

Define a Short Straddle

A

Consists of a short call and a short put, on the same underlying stock, with the same strike price and expiration month. The investor has an unlimited loss potential on the short call leg of the straddle.

56
Q

A registered representative receives an order from the president of XYZ Corporation to sell unregistered XYZ shares. The client purchased the shares in a private placement 90 days ago. This order:

a) Will require the filing of Form 144 with the SEC
b) May be executed without any restrictions
c) Must be approved by a principal prior to execution
d) Is a violation of Rule 144 if executed

A

d) Is a violation of Rule 144 if executed

57
Q

A discount bond is always priced to…

A

Maturity

58
Q

The Federal Reserve Board’s Open Market Committee (FOMC) buys and sells which of the following securities most often to accomplish its aims?

a) Treasury bills
b) Treasury notes
c) Treasury bonds
d) Agency bonds

A

a) Treasury bills

59
Q

Which TWO of the following statements are TRUE regarding a variable annuity accumulation unit?

I) It is an accounting measure used to determine an owner’s interest during the pay-in phase
II) It is an accounting measure used to determine an owner’s interest during the payout phase
III) The value of the units will remain fixed
IV) The value of the units will fluctuate

A

I and IV

60
Q

Why does rising inflation negatively affect the bond markets?

A

When there is rising inflation, bond investors look to trade out of fixed-income investments, which will have their returns eroded by rising consumer prices.

61
Q

Build America Bonds (BABs)

A

Municipal bond that pays taxable interest but the Treasury will reimburse 35% of the interest paid on the bonds to the issuer, which reduces the cost of borrowing and allows municipal issuers to compete with corporate issuers for raising capital.

62
Q

What is the margin requirement when purchasing options?

A

100%

63
Q

Which TWO of the following taxes would best describe income taxes and estate taxes?

I) Flat taxes
II) Graduated taxes
III) Regressive taxes
IV) Progressive taxes

A

II and IV

64
Q

Your client is president of XYZ Corporation and is selling XYZ shares pursuant to Rule 144. A filing must be made with the SEC:

A

At the time of the sale and is effective for 90 days

65
Q

Annuity suitability rules require that contracts sold through FINRA members…

A

Be forwarded to the representative’s OSJ and be approved by a principal within 7 business days of receipt before being sent to the insurance company.

Series 7 (4 decks)

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