Series 7 Final 1 Missed Questions

The dollar has appreciated against foreign currencies. The likely result is a(n):
I increasing trade surplus
II decreasing trade surplus
III increasing trade deficit
IV decreasing trade deficit
A. I and III
B. I and IV
C. II and III
D. II and IV

C.
If the dollar appreciates, U.S. goods become more expensive to foreigners and foreign goods become cheaper in the U.S. Thus, we are likely to import more, reducing any trade surpluses; or increasing any trade deficits.

Which statements are TRUE when comparing a full power of attorney given in a brokerage account to a limited power of attorney?
I The individual given a full power of attorney can draw checks only
II The individual given a full power of attorney can enter

D.
A person holding a limited power of attorney in a brokerage account can enter orders but cannot draw checks. A person holding a full power of attorney can do both - but any checks must be drawn to account name - not to the name of the third party.

When recommending fee based accounts to customers, member firms should consider:
I Cost of trading in the account
II Anticipated level of trading activity in the account
III The importance that the customer places on aligning his interests with the broker

D.
All of the statements are true. When recommending fee based accounts, member firms should consider, among other things, the cost of trading in the account; the anticipated level of trading activity in the account; the importance that the customer place

A client, age 67, owns his own home free and clear. The customer has an annual income of $25,000, mainly from social security and interest on funds held in a bank savings account. The customer has never invested and is told by his nephew that the technolo

A.
This customer is age 67 and has very little income and no other liquid assets. He cannot afford to lose a bunch of money and he should do nothing!

A 50-year old man owns a non-qualified variable annuity contract that has appreciated substantially over the years. He wishes to annuitize the account for additional income using IRS Rule 72t. How will the first payment be taxed?
A. 100% taxable ordinary

C.
Instead of taking a lump sum distribution, the owner of a variable annuity contract can "annuitize" and receive annuity payments for life. Each payment has 2 components - an earnings portion that is taxable and a return of capital portion (cost basis)

A client has a portfolio of $2,000,000 that consists of $600,000 of an Energy ETF; $600,000 of a Gold/Precious Metals ETF; $600,000 of a Uranium/Oil ETF and $200,000 of short term Treasury securities. This customer's investment objective is:
A. preservati

D.
Investments in commodities are made for long term capital growth, especially if inflation is expected in the future (though that is not mentioned in the question).
Preservation of capital is an investment objective for someone who can't afford to lose

Customer Name: Jack and Jill Customer
Ages: 62 and 57
Marital Status: Married - 39 years
Dependents: None
Occupations: Jack - Manufacturing Manager - Dyno-Mite Corp.
Jill - Marketing Consultant - Self Employed
Household Income: $140,000 Joint Income
($100

B.
Dividend income is currently taxed at the preferential rate of 15%, so investments in high yielding common and preferred stocks will meet the customer's objective of tax advantaged income.
High yield bonds come with a high potential risk of default, an

Which statements are TRUE regarding Real Estate Investment Trusts?
I Mortgage REITS can only invest in long term mortgages, but not short term loans
II To be regulated under Subchapter M, 90% of Net Investment Income must be distributed to shareholders
II

B.
To be regulated, REITs must distribute at least 90% of their Net Investment Income to shareholders. Equity REIT's invest in real estate and use the net rental income to service the debt used to purchase the properties. Mortgage REITs invest in both mor

The Securities Exchange Act of 1934 regulates which of the following markets?
I Primary Market
II Second Market
III Third Market
IV Fourth Market
A. I only
B. II only
C. II, III, IV
D. I, II, III, IV

C.
The Securities Act of 1933 regulates the new issue (primary) market. The Securities Exchange Act of 1934 regulates the secondary market (the trading market). The trading markets consist of the first market (trading of listed securities on an exchange),

A customer buys 100 shares of ABC stock at $25 as an initial transaction in a new margin account. The customer must deposit:
A. $625
B. $1,250
C. $2,000
D. $2,500

C.
Regulation T initial margin to buy stock is 50% of $2,500 = $1,250. However, since this is a new account, it must meet the minimum initial margin of $2,000 needed to open an account. Therefore, $2,000 must be deposited.

Under FINRA rules, disputes between a registered representative and a brokerage firm are:
I handled by binding arbitration
II handled by litigation
III appealable
IV non-appealable
A. I and III
B. I and IV
C. II and III
D. II and IV

B.
Disputes between registered representatives and brokerage firms are handled by binding (non-appealable) arbitration.

To open a new account for a trust, which statement is TRUE?
A. The tax identification number of the trust must be obtained
B. The tax identification number of the trustee must be obtained
C. The tax identification of the trust beneficiary must be obtained

A.
Trusts are legal entities that are taxed under the Internal Revenue Code, thus they have their own tax identification numbers.

Which of the following is defined as an "accredited investor" under Regulation D?
A. Non-profit organization with assets in excess of $2,000,000
B. Trust with assets in excess of $5,000,000 whose purchase is directed by a sophisticated person
C. Partnersh

B.
There is no limit on the number of accredited investors that can purchase a private placement under Regulation D. Regarding institutional investors, any investment company, insurance company, bank, or savings and loan is accredited. A non-profit organi

Under FINRA rules, to ascertain which investments are suitable for the customer, the registered representative would inquire about the customer's:
I Existing investment holdings
II Current investment objective
III Financial situation and needs
IV Daily li

C.
"Suitability" means that securities which are recommended to a customer are appropriate for that customer. To ascertain which investments are suitable for the customer, FINRA states that the basis for making the recommendation are the facts disclosed b

Which statement is TRUE regarding Regulation A?
A. Offerings are limited to a maximum of 35 non-accredited investors
B. Offerings are limited to a maximum size of $50,000,000
C. A Prospectus must be delivered to purchasers
D. The Offering is exempt from r

B.
Regulation A is intended to make it easier for smaller issuers to raise capital. There are 2 "tiers" to the rule. Tier 1 gives an "E-Z" registration process to offerings of no more than $20 million in a 12 month period. Tier 2 requires more detailed in

A 25-year old single client has just started his own small business and is not covered by a retirement plan. He has $5,000 to invest and currently has a low level of income. He wishes to start saving for retirement. The BEST recommendation is a:
A. Roth I

A.
Anyone with earned income can open an IRA. Because this individual is in a low tax bracket, a Roth IRA contribution, which is non-deductible, makes sense (there is no real benefit from making a deductible contribution to a Traditional IRA). With $5,000

Which of the following statements is TRUE regarding quotes for municipal bonds found in Bloomberg?
A. All quotes shown in Bloomberg are for round lots
B. All quotes shown in Bloomberg are subject to prior sale or change in price
C. All quotes shown in Blo

B.
The MSRB requires that all quotes that are disseminated be "bona fide." This means that, at the time that the quote was placed, the firm giving the quote is willing to trade at that price for the size quoted. However, all quotes are subject to prior sa

A customer places an order to buy bonds. The order reads "Buy 5M ABC 9s M '45 @ 90 Stop Limit GTC." After the order is elected, at which of the following prices may the order be executed?
I 89
II 90
III 91
IV 92
A. I and II only
B. III and IV only
C. II,

A.
The customer places a buy stop limit order to buy 5M - or 5 $1,000 par bonds at 90% of par or better. Buy stop limit orders are placed at a price that is higher than the current market. If the market price rises to 90, the order is elected, but instead

A customer in New Jersey calls a registered representative (agent) in New York and inquires about buying common stock. The customer wishes to place the order. Which statements are TRUE?
I The agent must be registered in the State of New York to accept the

A.
This question gets at a fine point of State law. Under State law, there is an "unsolicited transaction exemption" that gives an exemption from State registration to any security involved in an unsolicited transaction. However, it does NOT give an exemp

Which of the following actions by the Federal Reserve will increase interest rates?
I Purchases of securities as directed by the FOMC
II Sales of securities as directed by the FOMC
III Repurchase agreements with U.S. Government dealers and banks
IV Revers

D.
To increase interest rates, the Federal Open Market Committee must direct a tightening of the money supply. Sales of securities by the Fed drains cash from the dealers, and tightens available credit. Reverse repos by the Fed do the same thing. In a rev

Which of the following positions would receive the greatest benefit of reduced margin requirements from portfolio margining?
A. Short naked call
B. Long stock/Long put
C. Short stock/Short put
D. Long call/Long putB

B.
Portfolio margin is based on the risk of a portfolio, rather than applying a fixed margin percentage to each security position. When a stock position is hedged by an option, as is the case with a long stock/long put position, then the maximum loss on t

SEC Rule 10b-5-1:
A. is the "catch all" fraud rule that makes any deceptive or manipulative practice in connection with the sale of a security potentially fraudulent under the Securities Exchange Act of 1934
B. gives officers of publicly held companies a

B.
SEC Rule 10b-5-1 allows officers of publicly held companies (statutory insiders) to establish "pre-arranged trading plans" that set future transaction dates and amounts of that issuer's securities; or that specify algorithms that establish the transact

Your customer, age 68, that has an IRA account at your firm valued at $500,000, passes away. The customer leaves the account to his son, age 38. He has no need for current income as he is still working, and wishes to know his best option to minimize taxes

B.
Since the son is the beneficiary, the most advantageous option, which is to roll over the account, is not available. Roll overs of inherited IRAs are only available to spouses. The best option is for the son to transfer the funds into a beneficiary dis

An analyst is reviewing the demographics of a municipality as part of a credit review for a G.O. bond issue. The analyst is reviewing:
A. population trends
B. assessed value trends
C. collection ratio trends
D. voter registration records

A.
Demographics is the study of the size, distribution, and vital statistics of a population group. Since G.O. bonds are paid by tax collections, a municipal bond analyst would be interested in the makeup of the population that is the source of the tax co

Registered representatives:
I can trade securities on stock exchange floors
II cannot trade securities on stock exchange floors
III can trade securities over-the-counter
IV cannot trade securities over-the-counter
A. I and III
B. I and IV
C. II and III
D.

D.
Registered representatives cannot trade securities - they can enter orders on behalf of customers to be executed by traders in the market.

Which statements are TRUE regarding Brokered CDs?
I There is a penalty for early withdrawal
II There is no penalty for early withdrawal
III There can be a loss of principal upon an early withdrawal
IV There can be no loss of principal upon an early withdr

C.
There is no penalty for early withdrawal of funds on brokered CDs - however the amount of interest earned will be pro-rated over the shorter life of the deposit. If interest rates rise after issuance, the value of the CD in the secondary market will fa

A customer has a long margin account that shows the following:
Long Market Value: $15,000
Debit Balance: $ 5,000
If the market value declines by $5,000, the debit balance will be what percentage of the equity in the account?
A. 25%
B. 50%
C. 75%
D. 100%

D.
This account originally shows:
Long Market Value Debit Balance Equity
$15,000 $5,000 $10,000
If the market value declines by $5,000, the account now shows:
Long Market Value Debit Balance Equity
$10,000 $5,000 $5,000
The debit balance of $5,000 is exac

Which statement is FALSE about CMBs?
A. CMBs are used to smooth out cash flow
B. CMBs are sold at a discount to par
C. CMBs are sold at a slightly lower yield than T-Bills
D. CMBs are direct obligations of the U.S. government

C.
CMBs are Cash Management Bills. They are sold at auction by the Treasury on an "as needed" basis to meet unexpected cash shortfalls, so they are not part of the regular auction cycle. Because they are sold on an irregular basis, they sell at slightly h

The syndicator of a limited partnership is the individual who:
A. acts as general manager of partnership operations
B. handles the organization of the partnership and registration of the securities
C. underwrites the offering of partnership securities
D.

B.
The syndicator of a limited partnership is the person who handles the organization of the partnership and the registration of the partnership securities.

When a recession is expected:
I investors will increase purchases of corporate bonds
II investors will increase purchases of government bonds
III yields on corporate bonds will decrease
IV yields on government bonds will decrease
A. I and III
B. I and IV

D.
When a recession is expected, investors sell corporate bonds (increasing their yields) and buy government bonds (decreasing their yields). Thus, the spread between corporate and government bond yields will widen.

All of the following callable municipal bonds are trading at a 5% basis. Which is LEAST likely to be called?
A. 3 3/4% coupon rate callable at 103 in 2018
B. 4 1/2% coupon rate callable at 103 in 2018
C. 5% coupon rate callable at 100 in 2018
D. 6 3/4% co

A.
An issuer is least likely to call bonds which have low interest rates (low financing cost to the issuer) and high call premiums (expensive for the issuer to call in these bonds).

A registered representative has written discretionary authorization from a customer. Specific customer approval is needed for the registered representative to effect which of the following transactions in the customer's account?
I Sell naked calls
II Sell

A.
Under MSRB rules, if a control relationship exists between a brokerage firm and the security being recommended, this security cannot be purchased in discretionary accounts unless the specific authorization of the customer is obtained first. The issue h

Corporate bonds are quoted on what basis?
A. Yield to maturity
B. Dollar price
C. Discount yield
D. Nominal yield

B.
Corporate bonds are usually term bonds - all bonds of an issue having the same interest rate and maturity. Term bonds are quoted on a percentage of par basis in 1/8ths, which is the same as a "dollar" quote.

The Specialist (DMM) can stop stock for:
I proprietary orders
II public orders
III brief time periods
IV that trading day
A. I and III
B. I and IV
C. II and III
D. II and IV

C.
The Specialist (now renamed the DMM - Designated Market Maker) can only stop stock - guaranteeing a price for a brief time period to a floor broker - for public orders. This is a Specialist/DMM courtesy function that allows floor brokers to "shop aroun

Long the stock and short the call is an appropriate strategy in a:
A. declining market
B. rising market
C. stable market
D. fluctuating market

C.
Whenever a customer has a stock position, and the customer wishes to generate extra income by selling an option against that position, the market sentiment is neutral. This is a covered call writer - a call writer who owns the underlying stock position

A customer invests $30,000 in a variable annuity contract. Over the years, the contract grows to $60,000 in value. At age 65, the customer takes a $40,000 lump sum distribution from the contract. The tax consequence is:
A. $40,000 non-taxable income
B. $4

D.
Variable annuity distributions are taxed LIFO (Last In; First Out). The "Last In" dollars are the tax-deferred build up in the separate account. These come out first and are taxable. Any distribution beyond this amount is a tax free return of invested

Quotes for corporate bonds found on Bloomberg are:
A. wholesale corporate bond prices for broker/dealers
B. retail corporate bond prices for public customers
C. the dollar amount of new issue corporate bonds traded over the preceding 30 days
D. the dollar

A.
Quote providers such as Bloomberg and Reuters give dealer to dealer prices (the "wholesale" market) for corporate bonds daily.

A customer buys 5M of 3 1/2% Treasury Bonds at 101-16. How much will the customer receive at each interest payment?
A. $17.50
B. $35.00
C. $87.50
D. $175.00

C.
"5M" means that 5-$1,000 bonds are being purchased (M is Latin for $1,000). Annual interest on the bonds is 3.5% of $5,000 face amount equals $175.00. Since interest is paid semi-annually, each payment will be for $87.50.
Notice that the fact that the

Customer Name: Jane Smith
Age: 41
Marital Status: Single
Dependents: 1 Child, Age 7
Occupation: Corporate Manager
Household Income: $120,000
Net Worth: $150,000 (excluding residence)
Own Home: Yes
Investment Objectives: Saving For College; Saving for Reti

C.
This customer is looking to use her $100,000 inheritance to fund her kid's college education. A 529 plan is best for this, since it grows tax-deferred and distributions used to pay for college are tax free. Since the kid is only age 7, a growth fund in

On the same day in a margin account, a customer buys 1 ABC Jan 35 Put @ $7 and sells 1 ABC Jan 25 Put @ $4 when the market price of ABC is $34. The position will be profitable if:
I ABC goes to 25
II ABC goes to 35
III the contracts are exercised
IV the c

A.
If both puts are exercised, the customer makes $700 (buy at $25; sell at $35; net of $3 paid in premiums). The contracts are exercised if the market goes down - and if ABC goes to $25 or lower, the customer will have the maximum potential gain. If both

The Securities and Exchange Commission is empowered to administrate all of the following Acts EXCEPT:
A. Securities Act of 1933
B. Trust Indenture Act of 1939
C. Investment Company Act of 1940
D. Uniform Securities Act

D.
The Uniform Securities Act is more commonly known as the "Blue Sky" state law, and is adopted "state by state." The SEC, a Federal agency, has no jurisdiction over activities within each state and does not administrate this Act. The SEC does administra

Interest income in a custodian account is reported on the tax return of the:
A. minor
B. custodian
C. parent(s)
D. grantor

A.
The social security number placed on a custodian account is the minor's. Any income in the account is taxable to the minor.

The minimum price at which an open end fund share can be purchased is:
A. Net Asset Value
B. Net Asset Value plus a commission
C. Market Price
D. Market Price plus a commission

A.
Mutual fund (open-end management company) shares are newly issued by the fund to any purchaser. The purchaser pays the next computed Net Asset Value plus a sales charge if the fund imposes a "sales load." For a "no load" fund, the customer would simply

Which statement is FALSE about a SIMPLE IRA?
A. The maximum annual contribution is the same as for a Traditional IRA
B. The contribution is made by the employee, who gets a salary reduction for the amount contributed
C. The plan is only available to small

A.
SIMPLE IRAs are only available to small businesses with 100 or fewer employees. The plan is established by the employer and is much more simple to establish and administer than a traditional pension plan (hence the name SIMPLE).
Each employee contribut

Which statements are TRUE regarding Roth IRAs?
I Roth IRAs allow for higher annual contributions than conventional IRAs
II Roth IRAs allow for the same annual contributions as conventional IRAs
III An individual can contribute up to $5,500 in 2018 to both

D.
Roth IRAs, unlike Traditional IRAs, do not permit a tax deduction for the amount contributed. On the other hand, when distributions are taken, unlike a Traditional IRA, the distributions are not taxable (given that the investment has been held for at l

All of the following are primary purchasers of Treasury securities EXCEPT:
A. Commercial banks
B. Broker-dealers
C. Investment companies
D. Federal Reserve Board

D.
Commercial banks and broker-dealers bid at Treasury auctions to buy securities for their inventories. Investment companies such as government bond mutual funds and unit investment trusts bid at auction to buy large blocks of Treasury securities directl

A municipal securities firm is hosting an event in its suite at a football game in the city where the firm is headquartered. A registered representative wants to invite an individual to join him in the suite to watch the game. The individual works for the

C.
This question is trying to confuse the MSRB gift limit with the MSRB Political Contribution Rule - and neither one applies in this scenario!
The Political Contribution rule prohibits MFPs (Municipal Finance Professionals) from making a contribution of

On the same day when the market price of ABC stock is $59, a customer takes the following options positions:
Buy 1 ABC Jan 55 Call @ $7
Sell 2 ABC Jan 60 Calls @ $4
Buy 1 ABC Jan 65 Call @ $2
This position is profitable when the market:
A. moves sharply d

C.
A butterfly spread is a market neutral position that is created by combining a "long" spread with a "short spread." It is called a "butterfly" because the 2 "outer" long positions are the wings of the butterfly, while the 2 short positions at the same

Typically, accumulation units of variable annuities represent an investment interest in underlying:
A. mutual fund shares
B. life insurance policies
C. direct participation programs
D. pension fund investments

A.
To fund variable annuity contracts, the monies paid in by contract holders are invested in a separate investment account that buys designated mutual fund shares. Thus, the separate account "accumulation units" really represent an interest in underlying

Which of the following securities deliveries are "good"?
I Guardian securities with an assignment performed by the legal guardian
II Trust securities with an assignment performed by the Trustee
III Partnership securities with an assignment performed by a

B.
Custodian account securities cannot be assigned by the minor. The minor has no legal authority. Any assignment must be made by the custodian. Guardian account securities are assigned by the legal court appointed guardian; partnership securities are ass

Which of the following statements are TRUE regarding NASDAQ Level II?
I It shows bid and ask quotes of each market maker with the quote size
II Each market maker must trade at the quoted price when matched by the System
III If a market maker refuses to ho

D.
All of the statements are true about NASDAQ Level II. It shows bid and ask quotes of each market maker with the quote size. Each market maker must trade at the quoted price when matched by the System. If a market maker refuses to honor a quote, this is

The Bond Buyer "20 Bond" index is composed of:
I General Obligation Bonds
II Special Tax Bonds
III Revenue Bonds
IV Industrial Revenue Bonds
A. I only
B. I and II only
C. III and IV only
D. I, II, III, IV

A.
The Bond Buyer 20 Bond Index consists of 20 General Obligation bonds with 20 years to maturity, all rated A or better. These are non self-supporting debt. In contrast, Choices II, III, and IV are all self-supporting debts.

Which of the following statements are TRUE about new issue municipal selling practices?
I The customer must receive a copy of the Final Official Statement if one is printed
II The customer must receive a copy of the Agreement Among Underwriters
III If req

D.
Under MSRB rules, a customer buying a new issue must receive a confirmation accompanied by a copy of the final Official Statement if one has been prepared. (If one has not been prepared by the issuer, there is no requirement to provide the document) If