SERIES 7 FINAL 3 INCORRECT ANSWERS (ATTEMPT 1)

ABC Company declared a fifty cent ($0.50) per share dividend on August 15th to shareholders of record Friday, September 15th. On which two of the following days can an ABC Company stockholder sell his shares and still receive his fifty cent ($0.50) per sh

[B] II and IV
Usually dividend questions are asked from a buyer's point of view, - buy before ex-date to receive the dividend - but this question says the investor already owns the stock and wants to keep the dividend; when should they SELL. In this case

Susan Jones has the following municipal bonds in her portfolio.
$20,000 AAA Sacramento Muni Asst 8% due 7/11
$30,000 AA Los Angeles, Ca GO 4.5% due 7/01/15
$50,000 A-1 CA State GO 5.24% due 09/01/16
$50,000 A-1 CA State Pwr Rev 5.9% due 07/15/17
$10,000 A

[D] the issuer of the bonds
Diversification would have been satisfied in all choices offered except for diversification of issuers. All these bonds have been issued within the State of California.

ERISA guidelines specify which of the following for purposes of trades involving equity and index options?
[A] Transactions in options in ERISA-regulated plans are only permitted if the options cover an entire index.
[B] Transactions in options in ERISA-r

[B] Transactions in options in ERISA-regulated plans are only permitted if the plan's objectives and guidelines allow for such transactions.
When reviewing options transactions in an ERISA-regulated plan, such transactions are permitted, but transactions

A trader writes 10 uncovered ABC June 50 calls at 4.75 when ABC stock is trading at 45. If the trader closes out their option position at 2.15 what is her gain?
[A] $2,150
[B] $2,600
[C] $3,000
[D] $4,750

[B] $2,600
Premiums Stock Trans.
writes 10 uncovered ABC June 50 calls at 4.75 S + 4,750
closes (buys) 10 ABC June 50 calls at 2.15 B - 2,150
What is her gain? + 2,600

When a registered representative conducts a seminar, which TWO of the following are true?
The seminar must be attended by a principal of the firm
A record of the seminar must be retained by the member firm
A copy of the seminar must be sent to the SRO pri

[C] II and IV only
Seminar record keeping rules require that a record of the seminar be kept by the firm and approval by one of the firms principals is required before the seminar can be held.

Which of the following statements would NOT be true about the characteristics of automated execution systems used for securities transactions?
[A] They are used only by institutional investors
[B] They expedite the execution of most transactions
[C] Marke

[A] They are used only by institutional investors
Automated execution systems can be used by institutions and by individual investors.

To analyze the capital structure of a company, which of the following ratios should be used?
[A] Current ratio
[B] Return on shareholder's Equity
[C] Total debt to earnings before interest and taxes
[D] Debt to equity

[D] Debt to equity
To analyze the capital structure of a company you would look at the debt to equity ratio which indicates how much money the company received from issuing bonds verses stock. If most of the money came from the issuance of stock the compa

Ezra likes ABC Common Stock and buys 100 shares of ABC at $30/share. He has held the stock for about 6 months. Which of the following transactions would NOT affect Ezra's holding period?
[A] Ezra buys a call on ABC common stock with a strike price of 30.

[A] Ezra buys a call on ABC common stock with a strike price of 30.
The only transaction that would not affect Ezra's holding period would be buying the call, because this would simply add to his position if exercised. The purchase of the put allows Ezra

A mutual fund sells a security for a profit that it has held in its portfolio for more than a year. It then distributes this profit to its investors. What would be the tax treatment of this distribution to an investor who has owned the mutual fund shares

[C] Long-term capital gain
The distribution of a long-term capital gain (i.e. the fund held the security for more than a year) is considered a long-term capital gain to the investors for tax purposes regardless of how long the investor has owned the mutua

A sharp drop in stock prices accompanied by increasing volume after a lengthy period of market decline is described as a
[A] Climax
[B] Breakthrough
[C] Washout
[D] Sell out

[A] Climax
A selling climax normally occurs at the end of a bear market. It is a sharp drop in stock prices accompanied by increasing volume after a lengthy market decline.

An investor with a large portfolio of blue-chip stocks has written call options on the stock to increase income in their account. If this investor "covers" the options, which of the following is TRUE?
[A] The investor has made an opening sale.
[B] The inv

[D] The investor has made a closing purchase.
In this question, the first thing the investor did was an "Opening Sale" because they sold calls against their portfolio for the additional income and now they are going to eliminate those Calls by buying them

A basis point equals:
[A] 1/1000 of 1%
[B] 1/100 of 1%
[C] 1/10 of 1%
[D] 1%

[B] 1/100 of 1%
A basis point equals 1/100 of 1% (i.e., .01%). Thus, 100 basis points equal 1%. It is the smallest measure in quoting yields on bills, notes, and bonds. For example, if a bond's yield increased from 7% to 7.40%, it has 40 basis points.

A trader has promised a block of municipal bonds "out firm with an immediate recall" to Broker A. Shortly afterward, the trader receives an order from Broker B at another firm. What is the appropriate manner in which the trader should handle this scenario

[B] The trader should send a "fill or kill" to Broker A immediately
In this scenario, the trader has bonds that are currently out firm. Action must be taken with Broker A before the bonds can be confirmed to Broker B. Because of this, the trader should gi

Which of the following securities transactions would NOT be permitted in a customer's cash account?
[A] A customer enters an order to sell a block of preferred stock that the customer currently holds long in the account.
[B] A customer enters an order to

[B] A customer enters an order to sell short a block of common stock that the customer currently does not hold long in the account.
Short sales are NOT permitted in cash accounts. The customer would need a margin account in order to sell stock short. Thou

Which of the following is FALSE with regards to repurchase agreements?
[A] The Federal Reserve Board's open market operations often utilize repurchase agreements.
[B] Repurchase agreements are money market transactions which are sometimes called "repos.

[C] Rates on such agreements are set quarterly and published by the Federal Reserve Board
Repo rates are not determined by the Federal Reserve Board and published quarterly. They are agreements and the rates are determined by the buyer, seller, and the cu

Which of the following will INCREASE the net asset value of mutual fund shares?
[A] Selling more fund shares than redeeming fund shares
[B] Redeeming more fund shares than shares sold
[C] Receiving interest income on portfolio securities
[D] Distributing

[C] Receiving interest income on portfolio securities
The net asset value of mutual fund shares is calculated by adding up the value of all the cash and securities in the portfolio and subtracting all liabilities, then dividing the result by the number of

The legal opinion about a municipal bond issue attests to which of the following?
The tax status
The "blue sky" status
The validity of the issue
The ability of the issuer to service the debt
[A] I and II only
[B] I and III only
[C] II and III only
[D] I,

[B] I and III only
The legal opinion is a statement of bond counsel that a municipal bond issue is legal under the laws of the issuing jurisdiction and that the interest on the bonds is exempt from federal income taxation. Such an opinion is part of the

One of your elderly clients took ill last week and was admitted to the hospital. You are notified by the client's adult child that the client passed away last night in their sleep. Upon hearing the news, your IMMEDIATE response should be to do which of th

[B] I and III
If an RR is informed that a client has died, the RR's immediate actions should be to mark the account holder's status as "deceased" and cancel all open orders. Later contact with the estate attorney will occur, and it is possible, depending

A technical analyst/chartist would interpret an inverted head-and-shoulder formation as:
[A] Neutral
[B] Bearish
[C] The reversal of an upward trend
[D] The reversal of a downward trend

[D] The reversal of a downward trend
A head-and-shoulder pattern signals the reversal of a trend. A head-and-shoulders top would signal that prices are falling. An inverted head-and-shoulders bottom would signal that prices are rising.

A customer sells short 100 shares of ABC at $40 and writes 1 ABC May 40 put at 3. The maximum loss potential to the customer is:
[A] $300.
[B] $3,700.
[C] $4,000.
[D] Unlimited.

[D] Unlimited.
A short put does not cover or protect a short sale. Theoretically, the market value of ABC could increase infinitely, causing an unlimited loss to the short seller.

Which of the following would be correct statements by a registered representative to a customer when recommending the purchase of a mutual fund?
Making purchases of funds under the same management may result in a lower overall sales load.
Capital gains di

[B] I and III
II is incorrect because Capital Gains are not income. They result from capital gains on the portfolio not dividends or interest.

In looking at a particular stock's patterns, you notice that the stock has historically mirrored economic performance. Which of the following would be the BEST characterization of this stock?
[A] This would be a speculative growth stock.
[B] This would be

[B] This would be a cyclical stock
A stock that tends to fluctuate with changes in the economy would be known as a cyclical stock.

A client's margin account is as follows: Long Market Value $22,000 Debit Balance $ 9,000 Does this client have any excess equity in this account?
[A] The client has no excess equity in the account.
[B] The client has $2,000 of excess equity in the account

[B] The client has $2,000 of excess equity in the account.
Start with the market value of the stock ($22,000), cut it in half ($11,000) and compare that to the debit balance (9,000), therefore the Excess Equity is $2,000 ($11,000 - $9,000 = $2,000).

A floor broker executing an order for a public customer asks the designated market maker to guarantee a price while giving the floor broker an opportunity to obtain a better price for the customer. This is known as
[A] a stop order
[B] stopping stock
[C]

[B] stopping stock
Stopping stock is a favor that a designated market maker can do for a floor broker. The floor broker knows they have the stock sold if they are "stopped" but they can still try to get a better price in the market place.

An investor places an order with a registered representative to buy 100 shares of ABC at $50 a share. The trade was executed at that price. However, the confirmation shows that the trade was executed at $5 a share. How much will the investor have to pay f

[B] $5,000
The investor must pay the price at which the trade was actually executed without any option to cancel the trade.

All of the following are advantages of Accelerated Cost Recovery System EXCEPT:
[A] 100% of the depreciable basis can be recovered.
[B] Salvage value is not considered.
[C] Used property is allowed a full write-off.
[D] It uses component depreciation.

[D] It uses component depreciation.
ACRS generally does not allow Component Depreciation but instead requires Composite Depreciation. Component Depreciation depreciates assets based on the life of the asset -eg; plumbing 20 years; building 50 years. Where

One of your clients is a corporate account. The corporation regularly sells its products to manufacturers overseas. Recently the company received an order from a British company. The terms of the contract specify that the British firm must pay in British

[C] The corporation should buy puts on the British Pound.
An investor or firm who has entered into a contract where they will be paid in a foreign currency would be worried about a decline in that foreign currency against the dollar. They would buy puts o

When XYZ stock is at 72 1/2, an investor buys 10 XYZ June 60 calls @ 23 1/2 and sells 10 XYZ June 90 calls @10. What is the investor's maximum profit potential?
[A] $1,650
[B] $1,350
[C] $13,350
[D] $16,500

[D] $16,500
The maximum profit on a debit spread is the difference between the strike prices adjusted by the premiums.
Premiums
buys 10 XYZ June 60 calls at 23.5 B - 23,500
sells 10 XYZ June 90 calls at 10 S + 10,000
Premium Debit - 13,500
difference betw

Two of the most likely reasons for a corporation to increase financial leverage are?
Growth in sales
Increased income for debt security holders
Profit improvement for the common investor
Increased number of common shares outstanding
[A] I and III
[B] I an

[A] I and III
Growth in sales would require more operating capital and leverage is directly reflected in growth of earnings.

All of the following are factors in the calculation of the money supply's M1 component EXCEPT:
[A] The amount of funds in demand deposit accounts
[B] The funds in people's checking accounts
[C] The amount of funds in certificates of deposit
[D] The amount

[C] The amount of funds in certificates of deposit
The M1 component of the money supply consists of currency in circulation, commercial bank demand deposits, NOW and ATS accounts, credit union share drafts, mutual savings bank demand deposits, and non-ban

A new client opens up a margin account. Their initial transaction in the account was a purchase of 100 shares of ABC at a market value of $2,750. To comply with regulations on margin accounts, what amount must the client deposit in cash?
[A] $825.
[B] $1,

[C] $2,000.
The client must deposit 50% or $2,000, whichever is GREATER. In this situation, 50% is $1,375, which is less than the $2,000 initial deposit figure.

In the course of reviewing a number of investment choices, an investor feels strongly that the technology sector will be going up significantly in the short-term. Within the sector, he really likes LMNO Corporation at $25 per share, but sees that there is

[B] This type of order will result in the purchase of all LMNO shares that are priced at or below the limit, followed by the cancellation of the remainder of the order for shares that were not immediately available.
An IOC (Immediate or Cancel) order is g

A customer is looking for a specific quote on a listed stock. You give the customer the latest quote which is shown as $6.50 - $6.70. You hear about a retail trade taking place on the third market for 2,000 shares at a price of $6.80 with a $0.20 per shar

[C] $6.80
The commissions charged are not added to the price per share when reporting the trade price on the consolidated tape. The consolidated tape shows the price at which the transaction took place which was above the current quote at a price of $6.80

A new issue of municipal securities is coming to market. The bond counsel used for this issue will normally review all of the following EXCEPT:
[A] The validity of the bonds from a constitutional approach
[B] The study performed to determine the feasibili

[C] The approval of the issue by the legislature
Legislative approval of the bond issue is NOT required. If the issue was a General Obligation bond then voter approval would be required. Although bond council does not always review the feasibility study,