Series 7 Practice Exam 4

SEC Rule 10b-18 provides an opportunity for publicly traded issuers to reacquire their shares in the secondary market. To comply with this regulation:

You take note of the dividend payout ratios and earnings growth of a number of listed companies whose stock may be suitable for several of your customers. The data you’ve gleaned from the Continental Consolidated Corporation (CCC) shows latest reported EPS of $5.00/share with a dividend distribution of $2.50, while the data from the Bergen Fairfield Company (BFC) has EPS of $1.15 and no dividend distribution.

Which of the following conclusions might be drawn from these data, in the absence of any other information?

The Green Shoe option found in many stock prospectuses:

Non-recourse loans used to finance direct participation programs:

Mr. Palmer, a high risk tolerant high net worth client of yours, has the following position in his margin account:

Short 1000 shares XYZ at $50/sh.

Cr. Bal.   $ 75,000

Two weeks later, XYZ is trading at $40/sh. Assuming Palmer has not yet closed out his short position, his Cr. Bal. will now be:

In presenting an array of debt investments for your customer’s consideration, various investment risks are a major part of your presentation. When reinvestment risk is being discussed, which of the below instruments is least exposed to it?

At option expiration with CMV at the strike price, which account with no other positions beyond the following option positions will always experience profit?

In financial planning discussions with Mr. Nicklaus, a customer of yours who has experience in real estate investing, he inquires about finding a securities investment through your firm which will provide upside potential from improvement in the real estate market while also providing liquidity in the event a quick exit is necessary. The most suitable investment meeting his criteria is:

Select from the below metrics the best test of corporate liquidity.

Variable annuities are subject to which of the following?

I.    State blue sky regulations

II.   SEC regulations

III.  FINRA rules

IV.  State insurance regulations

The FINRA 5% policy applies to which of the following?

Your B/D is not a market maker in the stock of LANG Enterprises (ticker symbol: LANG), a NASDAQ listed stock. You receive, and accept, a customer buy order for 500 shares of LANG at the market. To fill this order, your order room purchases the shares from a market maker to fill the customer order. Which term below best describes this situation:

Mr. Haas goes long 5.5% ABC debentures at 94 with 10 years until maturity. Five years later, due to a change in interest rates, credit quality and approaching maturity, the market value of his bonds has risen to 96. If he were to liquidate his bond position at this price, the most likely tax consequence in the year of sale would be:

One of the most notable risks which must be disclosed to your customer when recommending CMOs is that as interest rates in the US economy fall:

ETNs are:

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:

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:

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.

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.

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:

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

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?

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.

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

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.