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Series 7 Practice Exam 10

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Question 1 of 10

1. Question

You have been approached by a long–time friend who has begun to package Reg. D offerings of real estate developments. His mission is to locate accredited investors and has asked you to provide him leads from your client list. He will pay you a finder’s fee for each lead which turns into a sale. If you wish to participate in this arrangement:

you must get your firm’s approval of this arrangement or you will be held in violation of the private securities transactions rules of the FINRA Code of Conduct.
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you do not require your firm’s approval, but you do need to notify your firm of your intent to participate.
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you may not participate under any circumstances since this is not a product approved by your firm.
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you would have to resign your license using Form U-5 before participating in your friend’s deal.
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Question 2 of 10

2. Question

A 40 year-old customer invested $10,000 in a nonqualified variable annuity. Ten years later she has a financial emergency and wishes to withdraw some of the current account value, which has grown to $18,000. She is concerned about the tax consequences of such a withdrawal. You explain to her that:

she may withdraw up to $10,000 tax free and without penalty.
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all withdrawn monies will be subject to ordinary income tax plus a 10% penalty.
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the first $8,000 of withdrawal will be taxed as ordinary income plus a 10% tax penalty.
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the first $8,000 of withdrawal will be taxed partly as ordinary income and partly as capital gains, plus a 10% tax penalty for premature withdrawal.
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Question 3 of 10

3. Question

Your client’s investment portfolio has a beta of 1.4 and yielded 7% over the previous 12 months. The S&P 500 Index has yielded 4.0% over the same 12 month period. Compute the Alpha of your client’s portfolio based upon these data.

7.0
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1.4
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5.6
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5.4
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Question 4 of 10

4. Question

Compute the number of days of accrued interest payable by the purchaser of the J-J1 State of Virginia 4.75s42 bought on Wednesday, February 25th.

54 days
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59 days
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60 days
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61 days
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Question 5 of 10

5. Question

Dealer to dealer good delivery of 580 shares of listed common stock, in accordance with the Uniform Practice Code of FINRA, would include each of the following deliveries except:

a stock certificate for 500 shares and a certificate for 80 shares
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a stock certificate for 580 shares
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580 certificates – 1 share each
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5 certificates for 75 shares each; 9 certificates for 20 shares each; 5 certificates for 5 shares each
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Question 6 of 10

6. Question

The most significant distinction between a selling syndicate member and a selling group member is:

motivation
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reputation
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commitment
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compensation
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Question 7 of 10

7. Question

A FINRA member firm has become insolvent. A SIPC Trustee has just been appointed by the Court. Liquidation proceedings are imminent. Which of the following statements is inaccurate with regard to SIPC coverage?

All cash and securities that can be located, identified and attributed to specific customers will be returned to those customers without limit.
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Up to $500,000 in cash and securities insurance coverage is provided to each ‘separate customer’ of the bankrupt broker/dealer.
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Cash claims in excess of $250,000 are uninsured by SIPC, creating a general creditor status for claimants with claims for cash above that figure.
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Up to $250,000 in cash in separate commodities accounts at the bankrupt B/D is covered by SIPC insurance.
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Question 8 of 10

8. Question

Christina Fauntleroy, a 78 year old widow and long time client of yours, wishes to open a joint account with her grand-niece Alison, who is about to enter high school. The purpose of the account is to teach Alison how to invest in the markets while also saving for college which will begin in 4 years.

you recommend the account be opened as JTWROS
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you recommend the account be opened as TIC
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you recommend the account be opened as joint tenants in their entireties
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you cannot open this joint account
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Question 9 of 10

9. Question

In the business of underwriting new issues, the term Western Account is most often associated with:

undivided liability
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several liability
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joint & several liability
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offerings of technology stocks
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Question 10 of 10

10. Question

The State of Wyoming has outstanding $250,000,000 in 5.5% GOs which are callable at par one year out. The financial officials of the state are concerned that today’s 4% rates won’t be available to the state a year from now when the state will be permitted to call the 5.5% issue. To avail itself of today’s 4% rates, the state issues 4% GO bonds today in sufficient quantity to afford the call a year from now, escrowing the proceeds of this new issue in short term government securities for one year, at which time it will use those funds to call in the 5.5% issue.

this is not permitted – the state must wait until the call date to issue the new bonds
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this is most often referred to as advance refunding
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this is not permitted – it is considered Treasury arbitrage, a violation of the law
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this is permitted only so long as the holders of the 5.5% issue are given a right of first refusal on the new 4% GOs
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Next: Series 7 Practice Test 11

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