Free and Premium FINRA Series-7 Dumps Questions Answers

$9,000. Credit balances in short accounts do not change because of fluctuation in market prices. The initial deposit of $3,000 ($6,000 x 50%) plus the $6,000 from the short sale leave a credit balance of $9,000.

machinery and pipe. These are tangible fixed assets and not associated with intangible drilling costs.

stopping stock. This is the definition of the term “stopping stock”.

securities purchased must be registered in Bubba’s name and then delivered to him. Bubba is requesting delivery of securities in his name instead of being held by the broker.

taxes. Tax credits are not deductible expenses and have no effect on basis.

FRB. The Federal Reserve Board sets the initial margin deposit requirements. The NYSE set the ongoing minimum equity requirements.

$5,500. The NYSE maintenance requirements on obligations of the US treasury vary depending upon the term of the instrument. For 20-year bonds, the requirement is 6% of the market value. Multiplying the market value of $92,500 by 6% equals $5,500.

a $1,000 gain. There is a $1,000 gain on the stock. The option is a separate capital asset.

Regulation U. Regulation T is the extension of credit by broker/dealers. Reg U relates to the extension of credit by banks on securities.

the longest maturity. These bonds are called first because the municipality will save the interest costs for the longest period of time.

expense ratio. Custodial fees are negligible and the sales charge is a one-time expense. The “best” reflection of mutual fund costs is the expense ratio.

commodities account in Bubba’s name only. SIPC does not cover commodities accounts.

reclamation. In a reclamation a dealer requests that another dealer reclaim an improper delivery.

under no circumstances. No guarantees may be made against loss of market value because no one can guarantee the direction of the market. Insured bonds are protected against loss of principal and interest but not against market value depreciation.

they mature one to three years from the date of issuance. Remember the question asks what is “not” a characteristic of treasury bills. The other choices are aspects of treasury bills, which most commonly have maturities of 90 days but never longer than one year.

ease credit. A lower reserve requirement permits member banks to have more money available for lending, thus ease credit.

a processing fee. Many custodian banks charge the custodian fee to the mutual fund rather than the individual shareholder.

this is permissible. Firms may establish house rules as long as they are at least as strict as the minimum maintenance requirements. Reg T only dictates an initial requirement and does not address minimum equity.

all of the above. A transaction that is simultaneous and thus riskless calls for a smaller than usual markup under FINRA guidelines.

$956.88. The price of 95.22 means 95 and 22 / 32. One thirty-second of a $1,000 bond with a par of 100.00 is $0.3125. Twenty-two thirty-seconds is therefore about $6.88. The 95 is the percentage of one bond with a par value of $1,000. Multiplying 95% by $1,000 equals $950. Adding $6.88 plus $950 equals $956.88.

providing short-term capital needs to client companies. The short-term capital needs of companies are normally the function of commercial bankers, not investment bankers.

furnish written documents of authority to the brokerage firm executing the orders. The wealthy investor has simply given Bubba discretion over the account. The brokerage firm only requires evidence that this authority has been granted to Bubba.

the purchase of one fund would probably be made at a break point allowing more dollars to be invested in fund shares. There is nothing inherently unsuitable about recommending three different funds. However, in most cases, a single fund offers satisfactory diversification and can be purchased with a reduction in sales charge.

a closed-end investment company. An open-end investment company may have a sales charge but not a commission.

a majority of the shareholders. Any factors that materially affect the interests of shareholders must be approved by a majority vote of the shareholders.

$54. Bubba’s position is a bullish spread. The breakeven is determined by adding the debit amount to the lower strike price. The debit amount is $4 ($7 - $3). Adding that to $50 equals $54.

the customer becomes a general creditor of the insolvent firm for the amount of deficiency. After the SIPC coverage is exhausted, the customer becomes a general creditor. Due to the insolvency of the broker/dealer, there is no likelihood of the customer receiving restitution.

a private placement. Normally, private placements are conducted with an investment letter.

500 votes. Under cumulative voting, the number of directors is multiplied by the number of shares owned. The votes may be cast all for a single director or divided in any manner among the directors.

$1,000. This is the minimum denomination. Normally, US treasury bonds are in much larger denominations.

all are registered. All are registered with the SEC.

when interest rates fall. Homeowners are most likely to refinance when rates are lower than the past.

no capital loss or income deduction is realized. The $20 premium is amortized over the ten-year life of the bond. After five years, half of the premium has been written down. The remaining premium is the same as the premium received upon selling the bond. The sale at 101 results in no loss or gain.

total debt service as a percentage of net operating revenue. This ratio is applicable to revenue bonds but not general obligation bonds. The other choices are all used in measuring credit risk in a GO bond.

the underwriter will be penalized his profit on any securities repurchased from his clients. Since clients sell shares back to the syndicate shortly after the offering, the underwriter has not made a proper distribution. The underwriter therefore may be penalized any profit.

it limits deductions to the amount at risk. Deductions may not exceed contributed capital.

the company files regular financial data with the SEC. Rule 144 transactions may use either agency or principal methods.

earnings retained after payment of dividends to shareholders. The other choices are clearly incorrect. Earned surplus is also referred to as retained earnings.

corporate bond. All of the other securities are issues backed by the US government, which are not considered funded debt.

$6.19. The fund has a redemption fee of 1%. This is about 6 cents based upon the bid price. Subtracting that from the $6.25 bid results in $6.19.

21,000. The underwriter is permitted to retain 70% of the 30,000 shares. The remaining 9,000 shares are kept in the pot by the manager.

10. If a customer fails to deliver securities within ten days after settlement, the broker must repurchase the securities.

regulated. Investment companies regulated by the Internal Revenue Code Subchapter M are required to pay out a minimum of 90% of their net income annually to their shareholders.

the common stock of a utility company. The term “defensive issue” refers to a security that is least susceptible to swings in the business cycle.

net income from dividends and interest paid on securities in the fund’s portfolio. Net investment income is dividends and interest but not capital gains.

liquidate the securities or otherwise cancel the transaction. Reg T requires the position closed if the customer fails to comply with the rules. An extension may be granted, but not by the member firm. Only an exchange or the FINRA grants extensions for bona fide reasons.

the value of the annuitant’s contract before annuity payments begin. Accumulation units determine contract value. Payout are determined by annuity units.

bylaws. The bylaws of a condominium association provide general details about management.

immediately. The employer’s contributions may be subject to a vesting schedule, but the employee’s contributions are immediately vested.

only after the SEC specifically clears the issue in writing to the principal underwriter. The registration statement becomes effective when notice is received in writing from the SEC.

short-term maturity. A money market maintains liquidity and is defined as having maturity of less than one year.

in-whole calls. Price to call computations are based upon in-whole calls only. These calls will result in all bondholders being called simultaneously, thus guaranteeing a minimum yield to all.

when the new issue of securities is purchased pursuant to a best effort basis. All the other choices are allowable under the rule “except” this one.

it is stock that has been reacquired by the issuer. Treasury stock has no voting rights and is not entitled to receive dividends. The shares have been issued but are no longer outstanding in the market.

the buyer is given one-day notice in writing. A contract made on a “seller’s option” may be terminated by the seller at an earlier date, provided that he gives the buyer one-day notice.

270 days. A characteristic of commercial paper is relatively short duration, normally not exceeding 270 days.

amount of the transaction. The other choices are not FINRA considerations. The dollar amount of the transaction is one of the factors considered in markup fairness. Other factors include the type of security, the amount of service rendered, the unit price of the security, and general availability of the security.

one specific municipal project plus the full financial strength of the issuer. Double -barreled bonds are first payable from a specific project, but are further guaranteed by the issuing municipality.

a best efforts offering. With a best efforts offering the investment banker does not make any guarantee that all the offered securities will sell. The investment banker pays for only those securities that are actually sold and returns unsold shares to the issuer.

120%. The toll facility usually sets rates to cover 120% of maintenance and debt service.

premium. That’s the term for the option cost.

open-end investment companies. Open-end mutual funds are a continuous offering of new securities that are not traded on an exchange. They trade only in the over-the-counter market. The other choices may trade over-the-counter or on exchanges.

secured lenders, general creditors, limited partners, general partners. Creditors first, in order of their security, then partners. General partners are last.

10 days. The customer has 10 days to deliver before the broker will buy in the account.

4%. The dividend is $1.20 per share ($6 x 20%). Divide this by the stock price to obtain the yield.

$2,000. Bubba started with $6,000 of equity and a debit balance of $4,000. The market value of his XYZ stock increased by $5,000 ($15,000 - $10,000). Therefore, his equity increased to $11,000. Since Bubba only needs 60% equity, his Reg T requirement is $9,000 ($15,000 x 60%). His equity exceeds the requirement by $2,000.

withholding blocks of a new issue in the member’s account. Underwriters and selling group members are prohibited from keeping blocks of a new issue for their own accounts.

to reflect prevailing credit ratings and market conditions for the issuer. Premiums or discounts are used in bond offerings to bring the yield in line with current market conditions.

interest is tax exempt, but the capital gain is taxable. This happens because Bubba purchased the bond in the secondary market with a different price than the original issue face amount.

they are not secured by collateral. Equity is ownership, which has no collateral security…or any other kind of security such as a guaranteed return, maturity, or marketability.

residential property not used for business. Depreciation is only permitted on income-producing property.

long one XYZ October 20 call and one XYZ January 30 call. Options in the same class are either both puts or both calls on the same security.

the price at which the issue is offered. The offering price is usually determined on the offering date and does not normally appear in the preliminary prospectus.

US treasury bills. T-bills are purchased at a discount and do not have interest coupons. When surrendered, the par value is paid at maturity. All the other choices, if they are paying any interest, pay throughout the term of the issue.

$53. The breakeven price on the call is the premium plus the strike price. Since the premium is $3 per share, the breakeven price is $53.

stay the same. The SMA does not decline as the market value declines.

all of the above. All of the choices are required information for the registered representative to obtain.

all of the above. All of the choices are normal ways for the broker to fill the customer’s order.

NAV=$28.14 and Asked Price=$27.75. In this case the ask price is less than NAV, which is never true of an open-end investment company.

the management group. The management group is actually comprised of the management company (including the underwriter) and the investment advisor.

income from extraordinary sources. Single events, such as the sale of property, do not affect basis.

fill or kill. This type of order is cancelled if the entire amount cannot be executed.

amortized over the life of the bond resulting in no loss at maturity. For tax purposes, premiums are amortized over the life of the bond. Some amount is taken each year.

a public school. Schools are typically financed by general obligation bonds. The other choices are examples of revenue bonds.

firm commitment. The term underwriting means a guarantee to the issuing corporation. This is a firm commitment, unlike a best efforts offering where there is no guarantee.

$600. The maximum profit is the difference between strike prices less the debit amount. The debit amount is $4 ($7 - $3). The difference between strike prices is $10 ($60 - $50). Multiply the $6 difference by 100, which is the number of shares on one option.

the official notice of sale. All bid requirements are found in the official notice of sale.

carrying margin accounts. A call loan is made to brokers who use securities as collateral. They are usually made to finance the debit balances in margin accounts.

the holders of common stock and the holders of preferred stock. The holders of all classes of stock are the owners. Each stock class has separate privileges, but all represent ownership. Even if the government is an owner, it holds shares of stock.

the amount of municipal bonds distributed weekly as a percentage of each week’s new issue accounts of more than $1 million. This is the definition of the ratio.

unit investment trust company. This is an example of a fixed trust, which is a type of unit investment trust.

a custodian under UGMA. The Uniform Gifts to Minors Act requires securities registration in the name of the custodian for the benefit of the minor. A margin account does not qualify because such an account has all securities registered in street name.

purchase any IPO security provided the plan is not sponsored solely by a broker/dealer. An ERISA plan that is qualified under Section 401(a) may purchase any IPO security provided that the plan sponsor is not a broker/dealer.

both B and C. Buying in the open market injects funds into the economy. Lowering reserve requirements provides banks with more funds for lending.

exchange distribution. An exchange distribution is a large block sold internally by one firm that is crossed on the floor of the exchange. The trade would print on the tape identified by the letters “DIST”.

continuity of life of the business and transferability of assets. Partnerships may seek to avoid continuance of the business life and asset transfer. The other choices are too important for partnerships to sacrifice.

0.01%. A basis point is one-hundredth of a point. Since a point is 1%, a basis point is 0.01%. A bond price change of one basis point is ten cents ($1,000 x 0.01%).

a SIMPLE. IRAs are for any individuals, not just small employers. The other choices do not exist.

borrowing at 6% and investing the funds at 10%. Leverage is all about using money obtained at a lower cost than what can be earned deploying the funds elsewhere. It is unrelated to arbitrage.

$400,000. In an Eastern account, liability remains open until the entire syndication is closed. Therefore, Big Easy has a liability for 10% of the unsold portion. Since the unsold portion is $6 million, the liability for Big Easy is 10% of that amount, which is $400,000.

prospectus contains the significant facts about the issue. The SEC never approves of guarantees an issue. It only attempts to verify that sufficient information is disclosed in the prospectus.

a share in the profits from earnings. Both shareholders and limited partners share in the profits from earnings.

4,000,000. Bubba owns 200 shares and receives rights for 100 more. The basis for the rights offering is therefore one new share for each two shares outstanding. The utility company is raising $40 million by selling shares at $20. Therefore, the company is selling 2,000,000 new shares. Since the ratio of existing shares to new shares is 2 to 1, there must be 4,000,000 presently outstanding shares.

tranche. That’s the term used to describe a separate class within a CMO issue.

it includes a markup. A market-maker acts as principal. Therefore, Bubba pays a markup but not a commission.

inventory. A manufacturer will normally have more inventory than accounts receivable and notes receivable. Sales is not an asset category.

determined by a method set forth in the prospectus of the issuer. The method is described in the prospectus. It uses the net asset value plus any sales charge

the FINRA Board of Governors. The first appeal is to the Board of Governors, then to the SEC, and then to the federal courts.

Series EE bonds. All the other securities may be traded. Series EE bonds are purchased and held to maturity. They are not tradable.

$500. Bubba sold short at $58. The call with a strike price of 60, gives him the right to buy back the stock at $60. If the stock rises, the call can be used to limit the loss to 2 points. Bubba can lose $200 on the stock. Bubba also paid a $300 premium. Loss potential is $500.

subject to federal income tax but exempt from state income tax. The interest on US government securities is taxed by the US government but not by state governments. The opposite is true of bonds issued by a state, which are exempt from federal tax but subject to state taxes -except for taxes of the state that issues them.

semi-annually. Investment companies are required to issue financial report semi-annually. Many do so more frequently.

the names of the underwriting syndicate members. At the time the notice of sale is published, the syndicate has generally not been formed. All the other information is required.

by competitive biding. The quoted prices for treasury bonds-as with all negotiable securities-is determined in the market by competitive biding.

may be levied only if the charge if fair, reasonable, and non-discriminatory. This is the standard in the FINRA rules.

it turns potential capital gains into current taxable income. Recapture is taxed as ordinary income, not capital gain. The other choices are not true.

36,000. Under Rule 144 up to one percent of the outstanding shares or the average weekly volume for the preceding four weeks, whichever is greater. The total volume for the last four seeks was 144,000 shares. The average is therefore 36,000 shares. This is greater than one percent of the shares outstanding (35,000).

open-end investment companies. The term is generally applied to open-end investment companies.

income, dividend, and capital gain distributions may be automatically used to purchase new shares of the fund. The new purchases are at the ask price, not the bid price.

FINRA. Sales literature regarding investment company shares must be filed with FINRA within three days after the first use.