Series 7 Prep

Failure to complete the Regulatory Element within the stated time period will result in a registered representative's:


In a best efforts underwriting, the underwriter is acting as a(n):


The longest initial maturity available for new issues of Treasury Bills is:

52 weeks

A municipal bond is issued with a covenant that states "if revenue collections are insufficient, the state legislature has the authority, but not the obligation, to make an annual apportionment of funds necessary to meet debt service requirements." This i

Moral Obligation Bond

A floor broker enters the crowd around the Specialist's (DMM's) post to buy 20,000 shares of ABC at the market for a public customer. The Specialist (DMM) tells the trader "20,000 shares of ABC have been stopped at 25." This means that:

the Specialist/DMM has guaranteed a price of $25 to the trader

What is the "out the money" amount of the following contract?
1 ABC Jan 55 Put @ $2
ABC Market Price = $61


Which orders, if executed guarantee a specific price or better?
I Buy Limits
II Buy Stops
III Sell Limits
IV Sell Stops

Buy limits and sell limits

A pass through certificate is best described as a:

security which gives the holder an undivided interest in a pool of mortgages

A municipal syndicate is preparing to bid on a competitive General Obligation issue. To determine the bid, the syndicate will first determine the:


Which of the following would NOT purchase STRIPS?
I Pension fund
II Money market fund
III Individual seeking current income
IV Individual wishing to avoid reinvestment risk

II and III

Which of the following statements are TRUE during the period that a non-exempt new issue is "in registration"?
I No advertising or sale of the issue is permitted
II The SEC may issue a deficiency letter requesting additional information before allowing re

I, II and IV

A customer has the following investment mix:
25% Growth Stocks
25% U.S. Government Bonds
25% Investment Grade Corporate Bonds
25% Speculative Stocks
Which asset classes have the greatest reinvestment risk?
I Growth Stocks
II U.S. Government Bonds
III Inve

II and III

The mandatory buy-in provision of Regulation SHO:
I applies to a fail to deliver of any equity security that is sold short
II applies to a fail to deliver of a threshold list security that is sold short
III must be completed within 3 consecutive settlemen

II and IV

Which of the following actions by the Federal Reserve will lower 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 Reverse r

I and III

Over-the counter traders perform which of the following functions?
I Position trading for the firm's inventory account
II Filling customer orders
III Giving quotes to customers
IV Setting the spread for each security traded

I, II, III and IV

Return on Common Equity

(net income after tax - preferred dividends) / average common equity

Common Equity

The sum of the firm's common stock, paid-in capital, and retained earnings, which equals the common stockholders' total investment in the firm, stated at book value.

A customer purchases $100,000 of corporate bonds at 80% in a margin account. The customer must deposit:
A. $7,000
B. $16,000
C. $20,000
D. $40,000

There is no Regulation T requirement for corporate bonds because the Federal Reserve is not "worried" about these. The only margins are the minimums set by the exchanges. The minimum maintenance requirement set by FINRA is the greater of 7% of face amount

ABC Corporation has 10%, $1,000 par convertible bonds outstanding, convertible at a 40:1 ratio. The common stock is currently trading at $24.75. If the bond is currently trading at 101, at what market price of the common stock would an arbitrage possibili

If the common stock were trading at $26, there would be an arbitrage opportunity. If the bond is bought and immediately converted into shares of common stock, the investor would: buy the bond for $1,010, convert the shares at a 40:1 ratio - or at $25.25 a

In 2018, a self-employed person earning $200,000 also has $100,000 of investment income. This person wishes to open a Keogh Plan. Their maximum permitted contribution is:
A. $20,000
B. $40,000
C. $55,000
D. $65,000

Keogh (HR10) contributions are based only on personal service income - not investment income. $200,000 of personal service income x 20% effective contribution rate = $40,000. Note that this is less than the maximum contribution allowed of $55,000 in 2018.

Which statements are TRUE regarding structured products?
I A "structured product" is a derivative security that is "structured" to have the characteristics of a debt, but give the higher returns typically associated with "equity" securities
II Structured

I, II and III

CAPM helps investors by:

selecting stocks with the highest expected return based on the investor's tolerance for risk
(Key word is expected return)

A sharp rise in interest rates would have the greatest effect on the market price of:
A. pharmaceutical stocks
B. public utility stocks
C. electronics stocks
D. forest products stocks

Utility company revenue streams are very stable, allowing the company to support a large percentage of their capitalization as debt. Since earnings do not vary much with the business cycle, bondholders are not worried about a bad year resulting in insuffi

Long-term negotiable certificates of deposit are subject to which of the following risks?
I Interest rate risk
II Call risk
III Reinvestment risk
IV Marketability risk

I, II, III and IV

Which customer's portfolio is MOST susceptible to a cyclical economic downturn?

The portfolio with largest portion invested in equities. Also, speculative grade bonds are also susceptible

Health Saving Accounts (HSAs):
I can be established by all employers that offer health insurance plans
II can only be established by employers that have high deductible health insurance plans
III are funded with tax-deductible contributions
IV are funded

II and IV
The HSA permits the employer or employee to make a deductible contribution in 2018 of up to $3,450 for a single individual; or $6,900 for a family; to the account. The contribution amount is indexed for inflation annually. The account is investe

An NMS stock is currently quoted at $15.20 Bid - $15.40 Ask. A customer wishes to place a limit order to buy 100 shares of the stock at $15.211. The registered representative should:

Reject the order
Rule 612 of Regulation NMS does not allow sub-penny orders to be entered for NMS stocks. The order must be refused under SEC rules (or the representative can tell the customer to enter it as $15.21, but this is not given as a choice).

Which statements are TRUE about non-managed fee based accounts?
I The customer must be provided with a disclosure document prior to account opening
II The customer must be provided with a disclosure document within 15 business days of account opening

I and III

The broadest monetary measure is:

The measures of the money supply are:
M-1 includes currency in circulation and demand deposits.
M-2 includes M-1 plus time deposits of $100,000 or less.
M-3 includes M-2 plus time deposits over $100,000.
L is M-3 plus savings bonds and money market inst

In order to open a discretionary cash account, which of the following procedures are required?
I Completed Customer New Account Form
II Signed Trading Authorization
III Signed Customer's Agreement
IV Signature of Manager on New Account Form

I, II and IV
Signed customers agreement is only needed when opening a margin account

A customer wishes to buy a security that provides monthly payments for his retirement. Which of the following is suitable?
A. Treasury Bonds
B. Income Bonds
C. GNMA Pass Through Certificates
D. Treasury Notes

GNMA Pass Through Certificate
Ginnie Mae Pass Through Certificates "pass through" monthly mortgage payments to the certificate holders. Each payment is a combination of interest and principal from the underlying mortgage pool. Treasury Bonds and Notes pay

Cabinet trades effected on the CBOE:
I can be used by customers to close out worthless long positions
II can be used by customers to close out worthless short positions
III result in an aggregate $1 premium per contract as a result of the transaction
IV r

I, II and III

An order placed "market - at the close" will:

either be executed at the closing price that day or will be canceled

Which statement is TRUE about the acceptance of an "indication of interest" for a registered offering during the 20 day cooling off period?

The indication can be canceled by the customer; the indication can be canceled by the brokerage firm

Which of the following can be considered to be "insiders" of ABC Corporation?
I ABC Corporation's President
II ABC Corporation's Treasurer
III The outside counsel of ABC Corporation
IV The independent auditor of ABC Corporation

All of them

FINRA rules require that orders to sell cannot be accepted unless the firm has reasonable assurance that the securities can be delivered in

2 business days (regular way settlement)

Which of the following statements are TRUE regarding Rule 144A?
I Rule 144A allows qualified institutional buyers to buy and trade between themselves large blocks of privately placed issues
II Rule 144A limits the amount of restricted securities that can

I and III

Rule 144

A regulation that provides for the sale of restricted stock and control stock. Filing with the SEC is required prior to selling restricted and control stock. The number of shares that may be sold is limited
Different from Rule 144A

Under the FINRA Conduct Rules, a broker-dealer may charge a customer for which of the following services:
I Collection of dividends
II Safekeeping of securities
III Handling the transfer and reregistering of securities
IV Distributing proxies to the owner

I, II and III
Distributing proxies to owners is paid for by the issuer

All of the following must be sent to broker-dealer customers semi-annually EXCEPT a broker-dealer's:

Security inventory amounts

The designated Registered Options Principal is responsible for which of the following functions?
I Writing of procedures for supervision of options accounts
II Review of procedures for supervision of options accounts
III Approval of options advertising

I, II and III
Branch Office Manager approves options accounts

There are 3 exceptions provided for cold calls to individuals that are on the National Do-Not-Call list. These are the:

Established Business Relationship (EBR) Exception;
Prior Express Written Consent Exception; and
Personal Relationship With The Associated Person Exception.
This is different from the firms do-not-call list

Intrastate offerings are subject to:

State and FINRA regulation

If the Securities and Exchange Commission sets the effective date for a new issue in registration, which of the following statements are TRUE?
I All proper documents have been filed with the SEC
II Additional documents must be filed with the SEC

I and IV

Which of the following are non-exempt securities under the Securities Act of 1933?
I Government National Mortgage Association Mortgage Pass Through Certificates
II Small Business Investment Company Shares
III Commercial Paper maturing over 270 days
IV Var

III and IV

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

I and IV

A registered representative at a FINRA member firm wishes to hold a seminar after work at the branch location. It will feature a dinner buffet, followed by a talk about the firm's latest investment recommendations and their possible suitability for the at

I and III
The SEC defines a research report as "any client communication that analyzes individual securities or companies if it provides information reasonably sufficient upon which to base an investment decision and is distributed to at least 15 persons.

The MSRB regulates all of the following EXCEPT:

Municipal Issuers

FINRA's 5% Policy applies to which of the following?

commissions charged on transactions effected over-the-counter

Fines assessed for convictions involving violations of insider trading laws are paid to the:

Department of Treasury

The designated Registered Options Principal (designated ROP) is responsible for the approval of options:
I advertising
II correspondence
III sales literature
IV accounts

I and III

Which of the following best describes a tombstone announcement?

It is an announcement of a new issue offering that is being registered with the SEC

Which of the following enforce MSRB rules for broker-dealers?
I Securities and Exchange Commission
II Municipal Bond Insurance Association Corporation
III Office of the Comptroller of Currency


Margins on government and municipal securities are set by (the):


Regulation A

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 infor

Under Regulation D, purchasers of private placement offerings must be given full disclosure through a(n):

Offering Memorandum

All of the following are accredited investors under the provisions of Regulation D

Accredited investors in a private placement under Regulation D include an individual with an annual income of at least $200,000 per year ($300,000 for a couple); or any person with at least a $1,000,000 net worth exclusive of residence. In addition, insti

require registration statement filing with the SEC under Rule 145?

Merger with another publicly held company or spin-off as publicly held subsidiary

considered a "control" relationship to be disclosed to customers

Any control relationship, wherein a person at the municipal securities firm is in a position to influence a municipal issuer whose securities are being traded by that firm, must be disclosed.

All of the following enforce MSRB rules for bank dealers

A. Office of the Comptroller of Currency
B. Federal Deposit Insurance Corporation
C. Federal Reserve Board

Under MSRB rules, if a customer requests, the dealer:
I must disclose the order priority provisions on a new issue
II does not have to disclose the order priority provisions on a new issue
III must disclose the underwriter's spread in a competitive bid ne

I and IV

Options advertising

any sales material that reaches a public audience through a mass medium, including: website, newspapers, periodicals, magazines, radio, television, telephone recordings, motion pictures, billboards, signs, or through sales communications to the public.

Which of the following statements are TRUE regarding electronic communications sent by registered representatives at member firms that have a communications compliance program in place?
I Registered representatives must be trained by the firm about what c

I, II and IV

A foreign broker-dealer that is not SEC registered is permitted to deal with clients in the United States:

Only if they are major institutional investors

U.S. Government agency securities:

Under the 1933 Act, Agency securities are exempt and are not required to be registered with the SEC, nor are they required to be sold with a prospectus. Generally, agency securities trades settle in 1 business day, not the same day (for the purpose of the

As interest rates move, which statements are TRUE regarding bond price volatility?
I The shorter the maturity, the greater the bond's price volatility
II The longer the maturity, the greater the bond's price volatility
III The lower the coupon rate, the g

II and III
The lower the coupon rate is the same as the greater the discount of a bond

A corporation has issued $1,000 par, 8% convertible bonds, callable at par. The bonds are convertible into 14 shares of common stock. Currently, the bond is trading at 102 while the common stock is trading at $75.50. The corporation calls the bonds at par

Multiply the convertible number of shares, 14, and common stock price of $75.50. Compare to the call price of $1000 and you see it's more valuable to covert than tender.

Most gov and agency obligations are exempt from state and local tax BUT:

However, the interest income on mortgage pass through certificates issued by Fannie Mae and Ginnie Mae is fully taxable. Income from REITs is fully taxable as well.

All of the following can initiate repurchase agreements with government and agency securities as collateral

Gov securities dealers, commercial banks and Federal Reserve banks

An "in whole call" is a(n):

optional call

A municipal variable rate demand note:
I is considered to be a short term issue
II is considered to be a long term issue
III gives the issuer the right to call the bond from the holder on pre-set dates
IV gives the holder the right to put the bond to the

II and IV

Municipal variable rate demand notes:
I have a minimum value which will never go below par
II have a maximum value which will never go above par
III are subject to market risk
IV are not subject to market risk

I and IV

MBIA insures municipal bonds for the:

Loss of both interest and principal from time of default

What source of information provides dealer offerings of municipal bonds in the secondary market?


Trades of all of the following will settle in Fed Funds

Prime banker acceptances, T-bonds and T-Bills

Government bond accrued interest is computed on an actual month/actual year basis. Trades settle through the Federal Reserve system in "Fed Funds.


Current Yield

a bond's annual coupon (interest) divided by its market price

The purchase price of each of the following can be negotiated EXCEPT:
A. Commercial Paper
B. Savings Bond
C. Certificate of Deposit
D. Banker's Acceptance

Savings Bond

Municipal Dollar Bonds

Are quoted on a dollar basis, not yield

Which of the following issue Eurodollar bonds?
I U.S. Corporations
II Foreign Corporations
III U.S. State Governments
IV Foreign Governments


Corporate bonds (in this case railroad bonds)

Quoted in 8ths, which can be reduced to 4ths

If a bond is purchased at a premium, which of the following statements are TRUE?
I Yield to call is higher than the yield to maturity
II Yield to call is lower than the yield to maturity
III Yield to maturity is higher than the current yield
IV Yield to m

II and IV

An investor who purchases a bond with a tender option at par is best protected from which of the following risks?

Market Risk

A "blue chip" corporation experiencing a short term cash flow shortage could issue:

Commercial Paper

A guaranteed corporate bond is one which is:

Is guaranteed by another corporation

Revenue Bonds

Only issued by municipalities, not corporations

Municipal Term Bonds

Quoted on dollar basis

Which of the following money market instruments trades "and interest" ?

CD's Certificates of Deposit

General obligation bond analysis would consider all of the following

Record of tax collections, ratio of total debt per capita and trend of assessed valuation of property

Which of the following designates "primary" U.S. Government securities dealers?

Federal Reserve

Makes up the secondary market in corporate bonds

Market makers, dealers and traders

Under SEC Rule 606 of Regulation NMS, broker-dealers are required to compile statistical information on routing of customer non-directed orders to market venues, and make this information available to customers:


The Consolidated Quotations Service shows quotes from which of the following sources for NYSE listed issues?
I New York Stock Exchange Specialist/DMM
II Boston Stock Exchange Specialist
III Pacific Stock Exchange Specialist
IV Third Market Maker


When looking at consolidation A tape

Stocks are sold in lots of 100

Specialists (DMMs) on the New York Stock Exchange can perform which of the following functions?
I Act as a market maker
II Act as a broker's broker
III Handle odd lot transactions
IV Act as an underwriter

I, II and III

A customer owns 100 shares of an NYSE listed preferred stock and notices that the typical daily trading volume in the issue is less than 1,000 shares. The customer wants to sell the stock and asks his broker what will happen if there is no ready buyer for

is obligated to buy the stock at the current market

The OTCBB includes quotes for:

The over-the-counter bulletin board is the place where dealers can post their offerings of non-NASDAQ issues (those stocks that are too small for a NASDAQ listing).

Regular way settlement for corporate bonds is

2 days

Interest accrues up to, but not including the

Settlement date

Mills, take number and divide by 1000

Ex. 8mills/1000

Tax on property

Use assessed value

Form 15g-2

Penny stock disclosure

Dow Jones consists of

30 significant stocks on the NYSE

Which of the following is/are traded over-the-counter in the "interbank" market?

Foreign Currencies

If a customer discovers an error on his or her account statement, the error must be reported promptly to:

Member firm that maintains the account

REITs can invest in which of the following?

Gov securities, mortgages and real estate

Which of the following statements are TRUE regarding the Official Statement?
I The Official Statement is required by the Securities Act of 1933 for all new municipal issues
II The Official Statement is requested by underwriters to satisfy SEC due diligenc

II and III

For bonds trading at a discount, rank the yield measures from lowest to highest?
I Nominal
II Current
III Basis
IV Yield to Call Basis

Nominal, current, basis then yield to call

Dow Jones Averages

Consist of 65 stocks

Dow Jones Industrial Average

Consists of 30 stocks

Personal Income

Coincident economic variable

Commercial Loans Outstanding

Lagging economic variable

All expenses associated with holding municipal bonds are:

0% tax deductible

Agency securities

Are sold through selling groups at par

Companies or issuers

Are prohibited from selling calls against their own securities/stocks

Which of the following securities can be margined?

T-bills, commercial paper and bankers' acceptances

Structured products

Cannot be margined

A client wants to transfer her account from one brokerage firm to another brokerage firm. How would she initiate the process?

She must begin this at the new firm by signing and completing the TIF

Legislative Risk

Can't be diversified away with municipal bonds

DvP Transactions

Are not subject to regulation T
Used by institutional clients
Funds to pay for DvP must be delivered promptly
Securities delivery must take place within 35 days after trade date

IRS Rule 72t

Allows someone to annutize variable annuity before age 59 and 1/2 without paying 10% penalty tax. Still pays partial tax

Coverdell Education Savings Account

Contributions limited to $2,000 and they aren't tax deductible.

UTMA or UGMA accounts

UTMA contributions are also not tax deductible, with no limitation as to how much you can give. Earnings are taxable annually to the child

Corporate bond purchased at discount in secondary market

Treated as taxable interest income

.30 mark down =


Wash sales

Loss affects the sale-proceeds, not the cost-basis

Diversification of Coupon Rates

Worst at combating capital risk (market risk)

Annuity unit

accounting measure of the annuity amount to be received by the owner

Accumulation Units

A variable annuity contract owner's interest in the separate account prior to annuitization.

Which statement is TRUE regarding a cash dividend received in a restricted margin account?

100% may be removed

The Self Regulatory Organizations (SROs) are:

Membership organizations

Which statements are TRUE about variable annuities?
I Contributions are tax deductible
II Contributions are not tax deductible
III Distributions are taxable
IV Distributions are not taxable

II and III

To purchase an intrastate offering

Must have primary residence in that state

Interest on Eurodollar bonds

Paid annualy

The FINRA 5% Policy applies to which of the following transactions?
I Over-the-counter agency trades
II Over-the-counter principal trades
III Trades of listed securities on an exchange floor
IV Mutual fund purchases

I, II and III

Which of the following are affected when securities are sold in a restricted margin account?
I Long Market Value
II Equity
IV Debit Balance

I, III and IV

Working with client who lives far away and can't come in

no physical contact is required between the customer and the registered representative, but the broker-dealer must verify the customer's identity by comparing information provided by the customer to a public database

Which of the following information items are needed to open a cash account for a customer?
I Customer's name and address
II Customer's social security number or tax I.D. number
III Customer's signature
IV Customer's occupation and employer

I, II and IV

Initial margin to buy stocks

50% of the PURCHASE price

mail can be held for:

3 Months

Market value at maintenance formula

Credit/ 1.3

Regulation T of the Federal Reserve Board requires

Customers pay for securities S + 2

Pattern day trader minimum maintenance

Either $25000 or 25% of intraday high


Can't be borrowed below minimum maintenance margin

All of the following procedures are required to open an account for an employee of another municipal securities firm

Prior notice must be given to municipal employer, any instructions from that employer must be followed and duplicate trade confirmations must be sent to that employer

Minimum maintenance of arbitrage account


To short stock, Regulation T requires the customer to deposit 50% of the sale amount


LEAP Options with over 9 months to expire

Have reg T requirement of 75%


Us Treasury's Financial Crimes Enforcement Network. Suspicious Activity Reports must be provided to FinCEN if a broker-dealer notices activity in accounts that appear suspicious or possible related to fraud or money laundering activities.

Margins are set by the industry. FINRA has set minimum maintenance margin requirements for marginable non-convertible corporate bonds at the greater of 7% of face value or 20% of market value for both long and short positions.

I should know this

How must an account opened under the Uniform Gifts to Minors Act be titled?

In the name of the custodian, for the minor