This is the first of five free Series 7 Practice Exams. This practice test features 25 challenging questions that cover a wide variety of the topics that you will need to know. Each question includes a detailed explanation of the correct answer. Start your test prep right now with our Series 7 practice questions.
A client of yours with a conservative level of tolerance for systematic risk and a fairly long time horizon has indicated that she would prefer to avoid substantial portfolio turnover. Your suitable recommendation would most likely be:
a tactical strategy.
a passive strategy.
an aggressive strategy.
a hedged strategy.
When comparing a broker-dealer and an investment advisor, which of these statements is most accurate?
Advisors are compensated based upon performance, brokers are not.
Advisors are compensated based upon transactions, brokers are compensated based upon assets under management.
Advisors are compensated based upon fees for advice, brokers are compensated based upon transactions.
Both are compensated based upon transactions.
An agent of a broker-dealer may borrow money from all of the below except:
a corporate affiliate of the agent’s member firm.
a client which is a bank.
a mortgage broker.
Mr. Watney has placed a buy order for 1000 shares of ABC at the market. The execution price was $42 in his cash account on Wednesday, February 4th. If he fails to make payment by Monday, February 9th, the most likely consequence will be:
an extension of time will be requested on his behalf and if granted, no liquidation will occur.
no extension of time is necessary under these circumstances: he has two additional business days in which to make payment.
the purchase will be canceled for non-payment: his account will be frozen for 90 calendar days.
the firm will do a sell-out, at Mr. Watney’s expense, and freeze his account for 90 calendar days.
The recommended way to handle a conflict of interest between a member firm and one of its customers in a proposed transaction or set of transactions is to:
disclose the conflict of interest to the customer.
let the compliance and/or legal department handle the situation.
avoid the conflict – don’t propose transactions which involve conflicts of interest.
the member firm should obtain FINRA approval of the proposed transactions.
Mrs. Ko’s portfolio has an aggressive bias towards growth stocks. As such, its beta is 1.4 and she is concerned about downside exposure due to overall market risk over the near term. The S&P 500 Index is currently at 2000.00 and her portfolio has a current market value of $1,000,000. Which of the following recommendations would provide the best hedge?
short 5 S&P 500 Index calls
long 5 S&P 500 Index puts
long 7 S&P 500 Index puts
long 700 S&P 500 Index puts
A wrap account is most appropriate:
for a client who actively trades.
for a client who is predominantly a buy and hold investor.
for a client wishing to follow a dollar cost averaging approach.
for a client nearing retirement who will primarily be withdrawing rather than making new investments.
All member broker-dealers are required to comply with the USA Patriot Act and related protective regulations. At the time of account opening, individuals filling out a new account form must supply certain information which will enable which of the following agencies to verify they are not on the list of known money launderers, terrorists or others deemed ineligible to open an account at a financial institution?
Your customer Mr. Furyk has expressed an interest in adding technology stocks to his portfolio. He informs you that he likes ABC Technology, Inc. and has instructed you to buy it when you think the time and price are right and to buy as much of it as you believe is reasonable when considering his portfolio mix and investment objectives.
because his instructions are giving you limited discretion as to price and time, you do not require written discretionary power
you would be required to obtain branch managerial approval before entering this order
you may place the order as you see fit, however Mr. Furyk retains the right to break the trade if he disagrees with the execution
you must have written discretionary power in order to do what this client wants
Which of the below statements is/are not untrue regarding a Roth IRA?
I. The maximum contribution below age 50 is $6,000
II. Withdrawals must begin by April 1 of the year after attainment of age 70½
III. Anyone with earned income may open a Roth IRA
IV. Withdrawals after age 59½ are taxable as ordinary income only to the extent they exceed the original principal/cost basis
I and III
I, II, III and IV
As for why the other answer choices are false: age 70½ has no significance in the Roth IRA; persons who have earned income above a Congressionally-set threshold are ineligible for a Roth IRA; post-59½ withdrawals from the Roth IRA are normally tax-free.
The Van Buren Growth Fund has its first breakpoint at $10,000, and its second breakpoint at $25,000. You have a customer for whom this fund is suitable and has told you he would like to invest $8,000 at this time. Without further discussion, you process the client’s purchase order.
When the client invests additional money into the fund, he will be granted the reduced sales charge on that portion of his investment which exceeds the breakpoint.
When the client invests additional money into the fund, he will be given a retroactive sales charge reduction once his total investment equals or exceeds the breakpoint.
You have engaged in a breakpoint sale.
None of the above.
For the customer who is seeking to hedge a short stock position, which of these strategies can provide some degree of protection?
I. buy limit order
II. long call
III. short put
IV. buy stop order
I, II, III and IV
II, III and IV
I and IV
Trades appear on Tape A as follows:
XYZ 49……..XYZ 48.95……..XYZ 48.90…….XYZ 49.05
Your customer’s 100 share order to sell XYZ at 49 stop, GTC placed prior to the above trade reports would be executed at:
The State of New Mexico has outstanding $100,000,000 of 5.5% general obligation debt maturing 7/1/35, callable in 2 years at 100½. If the State issues new GOs with a 4.5% coupon in sufficient quantity to retired the 5.5% bonds in 2 years when callable, and escrows the money for that specific purpose, this is referred to as:
One of the best ways to hedge against loss when long a listed stock is to acquire a long put position. As such, your client who had purchased 100 shares of Alpha Beta common six months ago at 12.40 takes your advice and buys 1 Alpha Beta May 20 put at 3 with the stock trading at 22.40 to protect against erosion of the 10 point unrealized capital gain. Which of the below statements is correct?
your client will break-even with the stock at 25.40
your client will break-even with the stock at 19.40
your client’s holding period on the stock is erased
your client’s potential profit has been capped by purchasing the option
On December 30th, with no other gains or losses for the year, Mr. Mickelson liquidated 300 shares of Ford common at $10 in which he had a cost basis of $20. Because of his long-term bullish belief in Ford, he acquired 300 shares of Ford at $11 on January 10th. His year-end loss of $3,000 is:
partially tax deductible in the year of sale
fully tax deductible in the year of sale
not deductible in the year of sale
not enough information to determine
Gamma Medical, a domestic NASDAQ listed company, has each of the below investments in its corporate investment portfolio. Identify the one with the best after-tax yield, assuming a 21% corporate tax bracket.
4% State of Ohio GO
5% US Treasury Bond
6% IBM debenture
5.4% Ford preferred stock
With the Fed engaging in a policy of tightening the money supply, interest rates are on the rise. The market price of which of the following issues would likely decline the greatest dollar amount?
all of the above would tend to decline at about the same rate
During normal trading hours, trades in listed stocks must be reported to the appropriate ‘tape’
within 2 seconds
within 10 seconds
within 30 seconds
within 15 minutes
Prior to the execution of a short sale of stock, it is the responsibility of the member firm handling the order to obtain an appropriate level of certainty that the shares are available for borrowing and within a time frame which will allow regular way delivery. the regulation which requires this is:
An option trader who simultaneously goes long an XYZ Oct 40 put and short an XYZ Nov 40 put will profit if:
both options expire unexercised
the difference in premiums widens
the market price of XYZ falls below 40 and remains there
none of these – this is an uneconomic trade
Mr. Poulter is a high risk tolerant high net worth client who enjoys trading options and shorting the market. As such, he places an order to short 1000 shares of Citigroup common at $2.25 per share. His deposit requirement with Reg. T at 50% would be:
The S&P 500 Index is currently at 1862.42. The S&P 500 Index March 1850 put just traded at 14.40. Pick from the below the answer which correctly states the intrinsic value and the time value of this option.
insufficient data to compute
0.00 intrinsic value; 14.40 time value.
Registered reps often recommend US T-bonds to their clients looking for stability of income and the safety of government paper. However, T-bonds are not immune from investment risk. To which of the following risks is a T-bond most exposed in the early years of ownership?
interest rate risk
A publicly-traded NYSE issuer has made a decision to raise capital abroad. The offering will be $150,000,000 of 7% 10 year debentures with warrants attached and will be offered only to investors outside the United States.
This offering is required to registered with the SEC as the company is listed in the NYSE.
This offering would require shareholder approval by a majority of stockholders.
This offering is exempt from SEC registration under Regulation S of the ’33 Act.
An offering of this type is a violation of SEC regulations.