Series 7 Exam 4|43 Questions with Verified Answers,100% CORRECT, Exams of Business Fundamentals

Download Series 7 Exam 4|43 Questions with Verified Answers,100% CORRECT and more Exams Business Fundamentals in PDF only on Docsity! Series 7 Exam 4|43Questions with Verified Answers #130. Costs associated with variable annuities that are not included in the sales charge may include a) Investment management fees and administrative expenses. b) Premium taxes. c) Mortality risk fee and expense risk fee. d) All of the above. - CORRECT ANSWER D. These charges are not included in the sales charge. Depending upon the contract, all are possible expenses or ongoing charges that are deducted from the separate account. #129. A prospectus can no longer be used if financial information is older than a) 90 days. b) 12 months. c) 13 months. d) 16 months. - CORRECT ANSWER D. A prospectus must contain current information about the investment company, and therefore, a prospectus that includes financial information more than 16 months old can no longer be sent out to prospective customers. #128. The NAV of a mutual fund is $15 per share and the sales charge is 8%. The POP is a) $13.80. b) $15.80. c) $16.30. d) $17.00. - CORRECT ANSWER C. To calculate the POP, use this formula: NAV/(100% - sales charge); $15/(100%- 8%); $15/.92 = $16.30. #124. The MSRB's anti-money laundering rules require that a municipal broker/dealer's procedures contain I. An employee training program. II. A designated independent party to test the procedures. III. Perpetrator forfeiture rules. IV. SRO reporting procedures. a) I and II b) I and IV c) II and III d) III and IV - CORRECT ANSWER A. In addition, the procedures must contain features to detect suspicious activity and money laundering activity as well as customer identification procedures. #120. XYZ Corp is planning a subsequent primary offering to raise additional capital for expansion. One of the executives at XYZ Corporation has a large holding of unregistered shares which he would like to sell in the open market. Which of the following would be the most suitable offering for this situation? #108. Which of the following would increase U. S. exports? I. Strengthening dollar; II. Weakening dollar; III. Balance of payment deficits; IV. Balance of payment credits a) I and III b) I and IV c) II and III d) II and IV - CORRECT ANSWER C. If the dollar is weak (lower-priced than the foreign currency) and the balance of payments are in deficit, then exports should suffer less restraint. #106. Most restricted stock is acquired through which of the following types of offerings? a) Direct participation program b) Registered secondary c) Regulation A d) Private placement - CORRECT ANSWER D. Unregistered securities purchased through a private placement are governed by Reg D. These securities are restricted from resale for 6 months for SEC-reporting companies, or for 1 year for nonreporting companies. Securities accumulated through Reg A are not restricted securities. #105. Long the stock. Sell a call. The call is exercised. The seller will receive the dividend if the call is exercised after the a) Settlement date. b) Payment date. c) Record date. d) X-dividend date. - CORRECT ANSWER D. The covered call writer is long the stock and entitled to the dividend if ownership continues up through the x-dividend date. Exercise would call the stock away. #104. An investor purchases a stock for $38 a share, sells it for $35 a share, then re- acquires the same stock two weeks later at $44 a share. What is the basis? a) $42 b) $38 c) $44 d) $47 - CORRECT ANSWER D. This is a question regarding the Wash Sale Rule. Since the investor sold the stock at a $3 a share loss but then re-acquired the same stock two weeks later, the loss is not usable on the customer's tax return. However, the $3 loss is reflected on the basis of the new stock by adding the $3 a share loss to the price of $44 a share; the basis is $47 a share. If the stock were sold later at, say, $52 a share, the investor would show a $5 a share capital gain. #91. A school teacher is retiring after 20 years of service. During the past 10 years, she invested $10,000 in a 403(b) through a payroll deduction offered by the school. Her account is now worth $16,000. What is her cost basis? a) $0 b) $6,000 c) $10,000 d) $16,000 - CORRECT ANSWER A. The teacher has contributed to a qualified retirement plan; therefore, all the money she has invested is pre-tax. She has not paid taxes on any of the money yet, so her cost basis is $0, and she will be required to pay ordinary income taxes on the entire amount she withdraws. #88. If a mutual fund publishes investment performance charts, the information presented must include a) Minimum sales charges. b) Average sales charges. c) Maximum sales charges. d) All of the above. - CORRECT ANSWER C. Published performance charts reflect maximum sales charges. #87. Which of the following investments would be least suitable for a retired individual with limited savings? a) T-bill b) Income bond c) CD d) Money market mutual fund - CORRECT ANSWER B. A single arbitrator conducts a hearing and renders a decision. c) This procedure is available for disputes involving amounts of $50,000 or less. d) The arbitrator's decision is binding on both parties. - CORRECT ANSWER B. There is no hearing under simplified arbitration, only written submissions from both parties which are reviewed by the single arbitrator. #69. A corporation may distribute dividends in the form of I. Cash. II. Stock. III. Stock of another corporation. a) I, II and III b) I only c) I and II d) II and III - CORRECT ANSWER A. Dividends may be distributed as cash, stock, or stock in a related or subsidiary corporation. #68. ABC stock is trading at $18.30 a share. The ABC June 20 put has a premium of $2.60. It has a time value of a) $0.90. b) $1.30. c) $2.60. d) 0; it only has intrinsic value. - CORRECT ANSWER A. The June 20 put is in the money. To determine the time value, you have to determine how much of the premium is intrinsic value (in the money), 20 (strike price) - 18.30(market price of ABC) = $1.70 (intrinsic value). Premium - intrinsic value = time value, so $2.60 - $1.70 = .90. #66. Which of the following is exempt from FINRA Rule 5130, which prohibits the purchase of IPOs by member firms and associated persons? a) An associated person who works for a member firm in the selling group b) An associated person whose limited registration permits selling only investment company products c) An associated person who works for a member of the syndicate, but does not plan on selling the IPO to customers d) An associated person who works for a member firm not involved in the syndicate - CORRECT ANSWER B. An associated person with a limited registration is not a restricted person. The other associated persons are restricted. Whether an associated person plans to sell the IPO and whether the member firm is involved with the offering is irrelevant. #59. A ZZZ Corp analyst includes ABC's 6% debenture in the analyst's newsletter. ZZZ Corp is currently underwriting an ABC stock offering. This is permissible a) Only with advance SRO approval. b) ZZZ Corp is not the managing underwriter. c) If the bonds are not convertible. d) Under no circumstances. - CORRECT ANSWER C. Because the bond is a different security than the stock, including it in the newsletter is permissible if it is not convertible. #57. For a callable bond, which statement is true concerning the "yield to call" vs. the "yield to maturity" rates? a) The yield to maturity will always be larger than the yield to call because the call premium is greater than the face value. b) A callable bond has no "yield to maturity," only a "yield to call." c) The yield to maturity is always larger because the holder of the bond receives the call premium as well as the face value at maturity. d) None of the above is true. - CORRECT ANSWER D. "Yield to call" is calculated like "yield to maturity" except that the end date is the next possible call date rather than the maturity date. Also, the ending value is the call premium value which is usually larger than par value that would be received if the bond were held to maturity. #54. Mary Parker has a very large annual salary and is two years from retirement. She has an immediate need to shelter her income from taxes. Which of the following would best suit her objectives? a) An oil and gas drilling program b) Raw land c) Real estate new construction program d) An oil and gas income program - CORRECT ANSWER D. Oil and gas income, although not the best tax shelter, is conservative for an investor 2 years from retirement. #49. I and IV b) II and III c) II and IV d) III and IV - CORRECT ANSWER B. II and III are both bearish. II is a credit call and III a debit put spread #35. Which of the following is shown at NASDAQ Level 2? I. Highest bid; II. Lowest bid; III. Highest offered; IV. Lowest offered a) I and III b) I and IV c) II and III d) I, II, III, and IV - CORRECT ANSWER D. Level 2 is the trading desk and sees all quotes entered. Level 3 is where the market maker enters quotes, while Level 1 is where the R/R and/or customer can see inside asked and bid, or lowest asked and highest bid. #32. A customer shorts one ABC Jan 65 call for a premium of 4 and holds one ABC 70 call for a premium of 1. What is the customer's maximum potential loss? a) $0 b) $200 c) $300 d) Unlimited - CORRECT ANSWER B. On this credit spread, if the option is exercised, the customer will lose $200. This is equal to the difference in the strike prices minus the net premiums. BUY 70 call for 1 minus SELL 65 call for 4 = 5 market minus 3 premium = 2 OR Premium = +4 minus 1 = +3 Market = +65 minus 70 = -5 = -2 loss #31. In order of liquidation, which of the following has a residual claim to the assets of the corporation? a) Preferred shareholders b) Common shareholders c) General creditors d) Secured bondholders - CORRECT ANSWER B. Common shareholders are said to have a residual claim to assets. This means that common shareholders are the last to be paid per the order of bankruptcy liquidation. As owners, common shareholders take the most risk and also receive the greatest benefit if the company prospers. #29. In a margin account, market value is $11,000 and debit is $5,000. What is the buying power in this account? a) $500 b) $1,000 c) $1,500 d) $2,500 - CORRECT ANSWER SMA is $500 (equity is $6,000 exceeding 1/2 of $11,000 by $500). Buying power is $1,000, or twice the SMA amount. #26. Under Reg D rule 506, how much money can be raised within 12 months? a) $1 million b) $5 million c) $10 million d) An unlimited amount - CORRECT ANSWER D. Under Reg D rule 506, there is an unlimited amount of money that can be raised. #25. Some securities are exempt from the registration and prospectus requirements of the Securities Act of 1933. All of the following securities are among this exempt class EXCEPT a) Commercial paper that has a maturity not exceeding 270 days. b) A security issued by a nonprofit organization. c) A security offered for sale in only one state. d) U.S. government securities. - CORRECT ANSWER C. - Offering all the securities in one state is an exempt transaction (Rule 147). The security offered through the exempt transaction is NOT an exempt security. The other securities listed are exempt securities. Municipal securities, although not listed in the question, are also exempt #24. The Investment Company Act of 1940 states that a certain percentage of a mutual fund's board of directors be unaffiliated with the fund. This minimum percentage of unaffiliated members must be at least a) 30%.