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- Herausgeber: John Wiley & Sons
- Kategorie: Bildung
- Sprache: Englisch
Prep for the Series 7 like a seasoned pro with this huge collection of practice questions and answer explanations Heads up, prospective Series 7 takers! Word is out that this popular exam's latest update made it a lot tougher. But don't sweat it. With the newly revised second edition of Series 7: 1001 Practice Questions For Dummies you'll get all the practice you need to maximize your chances of acing the test your first time around. This book shows you where your knowledge is strong and where you need work, letting you focus your efforts where they will make the most difference. Here's what's included: * 1001 realistic and challenging practice questions with detailed answer explanations * Coverage of every domain and competency tested on the exam * New questions comprehensively aligned with the latest version of the Series 7 exam A must-have study aid perfect for anyone ready to take their next step on the road to a new career in securities trading, Series 7: 1001 Practice Questions For Dummies will help you banish test anxiety, improve your odds on the exam, and give you all the tools you need to succeed.
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Series 7 Exam: 1001 Practice Questions For Dummies®, 2nd Edition
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ISBN 978-1-394-19288-5 (pbk); ISBN 978-1-394-19289-2 (ebk); ISBN 978-1-394-19290-8 (ebk)
Series 7 Exam: 1001 Practice Questions For Dummies®
To view this book's Cheat Sheet, simply go to www.dummies.com and search for “Series 7 Exam: 1001 Practice Questions For Dummies Cheat Sheet” in the Search box.
Table of Contents
Cover
Title Page
Copyright
Introduction
What You’ll Find
Beyond the Book
Where to Go for Additional Help
Part 1: Practicing the Questions
Chapter 1: Underwriting Securities
The Problems You’ll Work On
What to Watch Out For
1–22 Bringing New Issues to Market
23–47 Agreement Among Underwriters
48–64 Reviewing Exemptions
Chapter 2: Equity Securities
The Problems You’ll Work On
What to Watch Out For
65–87 Common Stock
88–103 Preferred Stock
104–118 ADRs, Rights, and Warrants
Chapter 3: Corporate and U.S. Government Debt Securities
The Problems You’ll Work On
What to Watch Out For
119–138 Bond Terms, Types, and Traits
139–156 Price and Yield Calculations
157–176 Comparing Bonds
177–200 U.S. Government Securities
201–206 Money Market Instruments
207–208 Structured Products
Chapter 4: Municipal Bonds
The Problems You’ll Work On
What to Watch Out For
209–227 General Obligation Bonds
228–244 Revenue Bonds
245–260 The Primary Market
261–284 Other Types of Municipal Bonds
285–296 Municipal Notes
297–300 Municipal Fund Securities
301–313 Taxes on Municipal Bonds
314–331 Municipal Bond Rules
332–352 Gathering Municipal Bond Info
Chapter 5: Margin Accounts
The Problems You’ll Work On
What to Watch Out For
353–359 Margin Paperwork
360–362 FRB Rules Relating to Margin Accounts
363–368 Initial Margin Requirements
369–370 Calculating Debt and Equity in Long Margin Accounts
371–374 Calculating Debt and Equity in Short Margin Accounts
375–381 Excess Equity
382–392 Restricted Accounts and Minimum Maintenance
Chapter 6: Packaged Securities
The Problems You’ll Work On
What to Watch Out For
393–427 Management Investment Companies
428–432 Face-Amount Certificate Companies, UITs, and ETFs
433–437 Real Estate Investment Trusts
438–449 Fixed and Variable Annuities
450–453 Variable Life and Variable Universal Life Insurance
454–456 Investment Company Rules
Chapter 7: Direct Participation Programs
The Problems You’ll Work On
What to Watch Out For
457–465 DPPs, General Partners, and Limited Partners
466–471 Partnership Paperwork
472–473 Types of DPP Offerings
474–476 Passive Income and Losses
477–496 Evaluating Direct Participation Programs
Chapter 8: Options
The Problems You’ll Work On
What to Watch Out For
497–509 Option Basics
510–529 Option Basics
530–571 Straddles, Combinations, and Spreads
572–604 Stock and Options
605–615 Non-equity Options
616–636 Registered Options Principal (ROP), the OCC, the ODD, and the OAA
637–640 Additional Option Rules
Chapter 9: Portfolio and Securities Analysis
The Problems You’ll Work On
What to Watch Out For
641–673 Portfolio Analysis
674–705 Fundamental Analysis
706–720 Technical Analysis
Chapter 10: Orders and Trades
The Problems You’ll Work On
What to Watch Out For
721–726 Primary and Secondary Markets
727–736 Exchanges and the OTC Market
737–741 Broker-Dealer
742–771 Order Types and Features
772–792 Designated Market Maker
Chapter 11: Taxes and Retirement Plans
The Problems You’ll Work On
What to Watch Out For
793–830 Taxes on Investments
831–836 Gift and Estate Tax Rules
837–864 Retirement Plans
Chapter 12: Rules and Regulations
The Problems You’ll Work On
What to Watch Out For
865–870 Securities Regulatory Organizations
871–919 Opening Accounts
920–973 Trading by the Book Once the Account Is Open
974–1001 Other Important Rules
Part 2: Checking Your Answers
Chapter 13: Answers and Explanations
Chapter 1 Answers
Chapter 2 Answers
Chapter 3 Answers
Chapter 4 Answers
Chapter 5 Answers
Chapter 6 Answers
Chapter 7 Answers
Chapter 8 Answers
Chapter 9 Answers
Chapter 10 Answers
Chapter 11 Answers
Chapter 12 Answers
Index
About the Author
Connect with Dummies
End User License Agreement
Guide
Cover
Title Page
Copyright
Table of Contents
Begin Reading
Index
About the Author
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Introduction
This book is designed for people like you who are getting prepared to tackle the Series 7 exam. Make no mistake, the Series 7 can be a gorilla of an exam if you don't prepare adequately. It is not enough for you to have a good grasp on the material covered on the Series 7; you also need to have completed enough practice questions to go in to take the real deal with confidence.
No doubt tackling test questions is a skill. I have tutored many students who could just about recite a Series 7 book, but when it came down to answering questions, they were lost. The only way to get better is to answer a lot of questions. You need to learn how to break questions down, focus on the last sentence in the question, and eliminate wrong answers.
Although the book is broken down into chapters and sections, you can jump around the book to whatever topic you need help with. Even though the book is broken down into logical chapters, when you take the real Series 7 exam, the questions are not going to be in chapter order; they will be jumbled. If you would like to get somewhat of a feel for the real exam, you may want to randomly grab 125 questions or so encompassing all of the different chapters and subchapters. You may want to answer every eighth question starting with number 1 the first time, 2 the second time, and so on.
This is your book, so feel free to either take a question and go look at the answer and explanation or complete a section before looking at the answers and explanations. Either way you do it, make sure that you give your best effort in answering each question before looking at the answer. Also, keep your eyes from wandering to the answers and explanations for questions you haven't completed yet.
Work hard and give yourself the best opportunity to pass the Series 7 exam on the first (or next) attempt.
What You’ll Find
The 1,001 Series 7 exam practice problems in the book are divided into 12 chapters with several subsections. Each chapter provides an abundance of question types you are likely to face when facing the real exam. As on the real exam, some questions will take you a few seconds to answer, and some will take you a couple of minutes.
The last chapter of the book provides the answers and detailed explanations to all the problems. If you get an answer wrong, give it a second attempt before reading the explanation. Eliminating answers that you know are wrong will have a big impact on your score as compared to just “C”ing your way through (just choosing the answer “C” for every answer you're not sure of).
Beyond the Book
This product also comes with an online Cheat Sheet that helps you increase your odds of performing well. Go to www.dummies.com.com and type “Series 7 Exam: 1001 Practice Questions For Dummies cheat sheet” in the search box. Here, you'll find articles on how to prepare for the Series 7.
Where to Go for Additional Help
I wouldn't say that any part of the Series 7 is overly difficult, but the exam itself is tough. The problem is that there is soooo much to remember. Remembering everything and not confusing rules and numbers makes it one of the tougher exams you can take.
In addition to getting help from people who have recently passed the Series 7, Series 7 teachers (like me), or tutors (like me), you can find a variety of questions and study materials online. A simple online search often turns up heaps of information. You can also head to www.dummies.com to see the many articles and books that can help you in your studies.
Series 7 Exam: 1001 Practice Questions For Dummies gives you just that — 1,001 practice questions and answers in order for you to prepare yourself for the Series 7 exam. If you need more in-depth study and direction, check out the latest edition of Series 7 Exam For Dummies, which I also wrote. This book provides you with the background info you need along with coverage of all the topics and concepts that are tested on the Series 7 exam. In addition, you get full-length exams to prepare yourself for test day.
Part 1
Practicing the Questions
IN THIS PART …
Underwriting Securities (
Chapter 1
)
Equity Securities (
Chapter 2
)
Corporate and U.S. Government Debt Securities (
Chapter 3
)
Municipal Bonds (
Chapter 4
)
Margin Accounts (
Chapter 5
)
Packaged Securities (
Chapter 6
)
Direct Participation Programs (
Chapter 7
)
Options (
Chapter 8
)
Portfolio and Securities Analysis (
Chapter 9
)
Orders and Trades (
Chapter 10
)
Taxes and Retirement Plans (
Chapter 11
)
Rules and Regulations (
Chapter 12
)
Chapter 1
Underwriting Securities
A good place to start is at the beginning. Prior to corporations “going public,” they must register and have a way of distributing their securities. The Series 7 exam tests your ability to understand the registration process, the entities involved in bringing new issues to market, and types of offerings. In addition, you’re expected to know which securities are exempt from Securities and Exchange Commission (SEC) registration.
The Problems You’ll Work On
As you work through this chapter, be sure you can recognize, understand, and, in some cases, calculate the following:
The process involved with bringing new issues to market
Who gets what (distribution of profits)
The different types of offerings
Exempt securities and transactions
What to Watch Out For
Read the questions and answer choices carefully and make sure that you
Watch out for words that can change the answer you’re looking for, such as EXCEPT, NOT, ALWAYS, and so on.
Recognize that there’s a difference between
exempt securities
and
exempt transactions.
If you’re not certain of the correct answer, try to eliminate any answers that you can. Doing so may make the difference between passing and failing.
1–22 Bringing New Issues to Market
1. For an entity to become a corporation, they must file a __________ with their home state of business.
(A) registration statement
(B) statement of additional information (SAI)
(C) corporate charter
(D) prospectus
2. GNU Corporation is planning to issue new shares to the public. GNU has not yet filed a registration statement with the SEC. An underwriter for GNU may do which of the following?
(A) Accept money from investors for payment of the new issue of GNU.
(B) Send a red herring to investors.
(C) Accept indications of interest.
(D) None of the above.
3. Which of the following information must be included in the registration statement to the SEC when registering new securities?
The issuer’s name and description of its business
What the proceeds of sale will be used for
Financial statements
The company’s capitalization
(A) I and III
(B) I, II, and III
(C) I, III, and IV
(D) I, II, III, and IV
4. What is the underwriting arrangement that allows an issuer whose stock is already trading publicly to time the sales of an additional issue?
(A) Shelf registration
(B) A standby underwriting
(C) A negotiated offering
(D) An Eastern account underwriting
5. SEC Rule 415 outlines rules for
(A) primary offerings
(B) shelf offerings
(C) secondary offerings
(D) IPOs
6. The cooling-off period for a new issue lasts approximately how many days?
(A) 20
(B) 30
(C) 40
(D) 60
7. All of the following terms apply to a new issue of securities EXCEPT
(A) stabilization
(B) due diligence
(C) matching orders
(D) cooling-off period
8. Under the Securities Act of 1933, the SEC has the authority to
approve new issues of common stock
issue stop orders
review registration statements
(A) I and II
(B) II and III
(C) I and III
(D) all of the above
9. Which of the following MAY NOT occur during the cooling-off period?
(A) Having a due diligence meeting
(B) Obtaining indications of interest
(C) The publishing of a tombstone ad
(D) Soliciting sales of the new security
10. If AylDec Corporation wishes to have a public offering of common stock, they must
issue a prospectus
publish a tombstone advertisement
register the securities with the SEC
(A) I and II
(B) II and III
(C) I and III
(D) I, II, and III
11. A tombstone ad would include all of the following names EXCEPT
(A) selling group members
(B) syndicate members
(C) the syndicate manager
(D) the issuer
12. All of the following would be included on a tombstone ad EXCEPT
(A) the name of the issuer
(B) the names of the selling groups
(C) the names of the syndicate members
(D) the name of the syndicate manager
13. Zamzow, Inc., has filed a registration statement and is currently in the cooling-off period. Zowie Broker-Dealer is the lead underwriter for Zamzow and is in the process of taking indications of interest. Which TWO of the following are TRUE regarding indications of interest?
They are binding on Zowie.
They are binding on customers.
They are not binding on Zowie.
They are not binding on customers.
(A) I and II
(B) III and IV
(C) I and IV
(D) II and III
14. Which of the following are types of state securities registration?
Filing
Communication
Qualification
Coordination
(A) I, III, and IV
(B) II, III, and IV
(C) I, II, and III
(D) I, II, III, and IV
15. This type of state securities registration is used for established companies that have previously sold securities in the state.
(A) Notification
(B) Coordination
(C) Indemnification
(D) Qualification
16. This type of state securities registration is used for securities that are exempt from SEC registration but must register with the state.
(A) Notification
(B) Coordination
(C) Indemnification
(D) Qualification
17. All of the following may be determined by the managing underwriter EXCEPT
(A) the takedown
(B) the public offering price
(C) the effective date
(D) the allocation of orders
18. The SEC has ruled that an offering has become effective. This means that
(A) the SEC has approved the issue
(B) the SEC has cleared the issue
(C) the SEC has verified the accuracy of the information provided on the registration statement
(D) all of the above
19. Which of the following securities acts covers the registration and disclosure requirements of new issues?
(A) Securities Act of 1933
(B) Securities Exchange Act of 1934
(C) Trust Indenture Act of 1939
(D) All of the above
20. Which of the following are covered under the Securities and Exchange Act of 1934?
Margin accounts
Trust indentures
Proxies
Short sales
(A) I, II, and III
(B) II and IV
(C) III and IV
(D) I, III, and IV
21. The Trust Indenture Act of 1939 prohibits corporate bond issues valued greater than _________ from being offered to investors without an indenture.
(A) $5 million
(B) $10 million
(C) $50 million
(D) $75 million
22. The main function of an investment banker is to
(A) advise an issuer on how to raise capital
(B) raise capital for issuers by selling securities
(C) help issuers comply with the laws of the Securities Act of 1933
(D) all of the above
23–47 Agreement Among Underwriters
23. Which of the following documents details the liabilities and responsibilities of each firm involved in the distribution of new securities?
(A) The registration statement
(B) The letter of intent
(C) The syndicate agreement
(D) The code of procedure
24. Which of the following documents would contain the allocation of orders?
(A) Official statement
(B) Trust indenture
(C) Syndicate agreement
(D) Preliminary prospectus
25. Which of the following types of underwriting agreements specify that any unsold securities are retained by the underwriters?
(A) Mini-max
(B) Firm commitment
(C) All-or-none (AON)
(D) Best efforts
26. An investment banking firm has won a competitive bid for a corporate underwriting of ABCDE common stock. The investment banking firm has agreed to purchase the shares from the issuer. This type of offering is a(n)
(A) all-or-none underwriting
(B) best efforts underwriting
(C) standby underwriting
(D) firm commitment underwriting
27. Which of the following is NOT a type of bond underwriting?
(A) Mini-max
(B) Best efforts
(C) Standby
(D) AON
28. Silversmith Securities is the lead underwriter for 2 million shares of HIJ common stock. Silversmith has entered into an agreement with HIJ to sell as many shares of their common stock as possible, but HIJ will cancel the offering if the entire 2 million shares are not sold. What type of offering is this?
(A) Firm commitment
(B) All-or-none
(C) Mini-max
(D) Best efforts
29. Selling group members are required to sign a
(A) syndicate agreement
(B) letter of intent
(C) selling group agreement
(D) repurchase agreement
30. Stabilizing bids may be entered at
(A) a price at or below the public offering price
(B) the stabilizing price stated in the final prospectus
(C) a price at or slightly above the public offering price
(D) a price deemed reasonable by the Fed
31. The public offering price to purchase a new issue of DEF Corporate bonds is $1,000. However, the issuer receives only $989 per bond. What is the $11 difference called?
(A) The takedown
(B) The underwriting spread
(C) The additional takedown
(D) The concession
32. Place the following in order from largest compensation to smallest compensation in an underwriting spread.
Concession
Manager’s fee
Reallowance
Takedown
(A) IV, I, III, II
(B) II, III, I, IV
(C) I, II, III, IV
(D) III, II, I, IV
33. What is the profit syndicate members make when selling shares of a new issue?
(A) The concession
(B) The takedown
(C) The reallowance
(D) The spread
34. The smallest portion of a corporate underwriting spread is the
(A) concession
(B) takedown
(C) reallowance
(D) manager’s fee
35. During an underwriting the profit made by syndicate members on shares or bonds sold by the selling group is called
(A) the selling group concession
(B) the takedown
(C) the additional takedown
(D) the reallowance
36. Armbar common stock is being sold to a syndicate during an underwriting for $13.50 per share. The public offering price is $15.00 per share, and the manager’s fee is $0.25 per share. If the concession is $0.80 per share, what is the additional takedown?
(A) $0.45 per share
(B) $1.15 per share
(C) $1.25 per share
(D) $1.50 per share
37. TUV Corp. is offering 6 million new shares to the public. The shares are being sold to a syndicate for $15 and are being reoffered to the public at $16. The compensation to the underwriters for each share sold is $0.75. The selling group receives $0.30 a share for each share it sells, and the managing underwriter retains $0.25 in fees for each share sold by anybody. The selling group will assist in selling 1 million of the 6 million shares offered. If the selling group sells its entire allotment, how much does the syndicate make on shares sold by the selling group?
(A) $200,000
(B) $300,000
(C) $450,000
(D) $750,000
38. Faber Hughes Corporation is offering 2 million new shares to the public. The shares are being sold to a syndicate for $8 and are being reoffered to the public at $9. The takedown for each share sold is $0.85. The concession is $0.55 a share, and the managing underwriter retains $0.15 in fees for each share sold by anybody. The selling group will assist in selling 500,000 of the 2 million shares offered. If the selling group sells its entire allotment, how much does it make in profits?
(A) $425,000
(B) $150,000
(C) $350,000
(D) $275,000
39. A municipality is offering $20 million of new bonds through a syndicate in a negotiated offering. A firm in a syndicate that is established as a Western account is responsible for selling $2 million of the bonds. After the firm sells $1.8 million of the firm’s allotment, the manager of the syndicate determines that there are $4 million of bonds left unsold. How much of the unsold bonds is the firm responsible for selling?
(A) 0
(B) 200,000
(C) 400,000
(D) 600,000
40. Liddell Securities is part of a syndicate that is offering new shares of SLAM Corporation common stock to the public. There are 8 million shares being offered to the public, and Liddell Securities is allocated 1 million shares. After selling its allotment, 800,000 shares remain unsold by other members. How much of the remaining shares would Liddell Securities be responsible for?
100,000 shares if the offering was on an Eastern account basis
100,000 shares if the offering was on a Western account basis
0 shares if the offering was on an Eastern account basis
0 shares if the offering was on a Western account basis
(A) I and IV
(B) II and III
(C) I and II
(D) III and IV
41. A syndicate is offering 10 million new shares to the public on an Eastern account basis. A member of the syndicate is responsible for selling 2.5 million shares. After selling its entire allotment, 1 million shares are left unsold by other members. How many additional shares is the firm responsible for selling to the public?
(A) 0
(B) 100,000
(C) 250,000
(D) 1 million
42. A registered rep may use a preliminary prospectus to
(A) solicit orders from clients to purchase a new issue
(B) show prospective investors that the issue has been approved by the SEC
(C) obtain indications of interest from investors
(D) accept orders and payments from investors for a new issue
43. All of the following are included in the preliminary prospectus EXCEPT
the public offering price
the financial history of the issuer
the effective date
(A) I only
(B) I and II
(C) II and III
(D) I and III
44. When is a red herring available to potential customers?
(A) Prior to the issuer filing a registration statement
(B) During the cooling-off period
(C) For 45 days after the issue has become effective
(D) For 60 days after the issue has become effective
45. The key difference between a preliminary prospectus and a final prospectus is that the final prospectus includes
(A) the offering price
(B) the issuer’s income statement
(C) the issuer’s balance sheet
(D) the issuer’s income statement and balance sheet
46. HIJ Corporation is issuing common stock through an IPO that will trade on the OTCBB when it is first issued. Broker-dealers who execute orders for clients in HIJ common stock must have a copy of a final prospectus available for how long?
(A) 25 days after the effective date
(B) 30 days after the effective date
(C) 40 days after the effective date
(D) 90 days after the effective date
47. Pluto Broker-Dealer is offering an IPO that will not be listed on the NYSE, NASDAQ, or any other exchange. How long after the effective date must Pluto provide a final prospectus to all purchasers?
(A) 20 days
(B) 30 days
(C) 40 days
(D) 90 days
48–64 Reviewing Exemptions
48. Which TWO of the following are considered securities under the Securities Act of 1933?
Variable annuities
Fixed annuities
FDIC insured negotiable CDs
Oil and gas limited partnerships
(A) I and III
(B) I and IV
(C) II and III
(D) II and IV
49. Which of the following securities are exempt from the full registration requirements of the Securities Act of 1933?
(A) Corporate convertible bonds
(B) Closed-end funds
(C) Real estate limited partnerships
(D) Commercial paper
50. Which of the following are non-exempt securities?
Municipal GO bonds
Treasury notes
Blue chip stocks
Variable annuities
(A) I and II
(B) II and III
(C) III and IV
(D) I and IV
51. Which of the following securities is NOT exempt from SEC registration?
(A) Limited partnership public offerings
(B) Treasury notes sold at auction
(C) Rule 147 offerings
(D) Private placements
52. All of the following are exempt securities under the Act of 1933 EXCEPT
(A) treasury bonds
(B) municipal general obligation bonds
(C) REITs
(D) public utility stocks
53. Which of the following are exempt transactions?
Private placements
Securities issued by the U.S. government
Municipal bonds
Intrastate offerings
(A) II and III
(B) II, III, and IV
(C) I and IV
(D) I, II, III, and IV
54. Which of the following Securities Act of 1933 exemptions may be used for an initial offering of securities?
Rule 144
Rule 147
Regulation D
Regulation S
(A) I, II, and III
(B) II and IV
(C) III and IV
(D) II, III, and IV
55. A Rule 147 offering is
(A) an offering of securities only within the issuer’s home state
(B) an offering of securities worth no more than $5 million within a one-year period
(C) an offering of securities to no more than 35 unaccredited investors within a one-year period
(D) also known as an interstate offering
56. Which of the following is TRUE of Regulation A+ Tier 1 offerings?
(A) They are limited to 35 unaccredited investors each year.
(B) They are issued without using a prospectus.
(C) They are limited to raising up to $10 million per year.
(D) They are also known as private placements.
57. Which of the following exempt transactions deals with an offering of $75,000,000 worth of securities or less in a 12-month period?
(A) Regulation A+ Tier 1
(B) Regulation A+ Tier 2
(C) Regulation D
(D) Regulation S
58. A Regulation S exemption under the Securities Act of 1933 is for
(A) a non-U.S. issuer issuing new securities to U.S. investors
(B) a U.S. issuer issuing new securities to non-U.S. investors
(C) a U.S. issuer issuing new securities to U.S. investors
(D) a non-U.S. issuer issuing new securities to non-U.S. investors
59. One of your clients purchased unregistered securities overseas from a U.S. corporation under Regulation S. Which of the following is TRUE?
They are exempt transactions.
They are exempt securities.
The securities must be held for 270 days before they can be resold in the United States.
The securities must be held for one year before they can be resold in the United States.
(A) I and III
(B) I and IV
(C) II and III
(D) II and IV
60. A Regulation D private placement is
(A) an offering of securities to no more than 35 unaccredited investors in a 12-month period
(B) an intrastate offering
(C) an offering of securities worth no more than $5 million in a 12-month period
(D) a large offering of commercial paper
61. Mike Steelhead and his wife, Mary, would like to open a joint account at your firm. They are interested in purchasing a private placement under Regulation D. You should inform them that to be considered accredited investors, they must have a combined annual income of at least
(A) $200,000
(B) $300,000
(C) $500,000
(D) $1 million
62. One of your clients wants to purchase a private placement. According to Regulation D, which of the following are the minimum standards for an accredited investor?
A net worth exceeding $1 million excluding primary residence
A net worth exceeding $300,000 excluding primary residence
An annual income exceeding $100,000 in each of the two most recent years and a reasonable expectation of the same income level in the current year
Annual income exceeding $200,000 in each of the two most recent years and a reasonable expectation of the same income level in the current year
(A) I and III
(B) I and IV
(C) II and III
(D) II and IV
63. Derrick Diamond has held restricted stock for six months. When must Derrick file a Form 144 with the SEC to sell the stock publicly?
(A) At the time of sale
(B) 30 days after the sale
(C) 60 days after the sale
(D) 90 days after the sale
64. Sig Hillstrand has held shares of Greenhorn restricted stock for more than one year. Greenhorn has 4 million shares outstanding. The most recently reported weekly trading volumes for Greenhorn are as follows:
What is the maximum number of shares that Sig can sell under Rule 144?
(A) 35,000
(B) 46,250
(C) 44,000
(D) 42,500
Chapter 2
Equity Securities
To be a corporation, you must have stockholders. Both common and preferred stock are considered equity securities because they represent ownership of the corporation. A majority of most registered representatives’ commission is earned by selling equity securities because, historically, equity securities have outpaced inflation.
Although this isn’t the largest section on the Series 7 exam, it does relate to many other chapters, such as packaged securities and options.
The Problems You’ll Work On
In this chapter, you’re expected to understand and calculate questions regarding the following:
The specifics of common stock
Voting rights and dividends
The difference between common stock and preferred stock
The reason for American depositary receipts (ADRs)
What rights and warrants are
What to Watch Out For
Read the questions and answer choices carefully and be sure you
Don’t assume an answer without reading each question and answer choice completely (twice if necessary).
Watch out for key words that can change the answer (EXCEPT, NOT, and so on).
Eliminate any incorrect answer choice that you can.
Look at questions from the corporation’s or the investor’s point of view depending on how the question is worded.
65–87 Common Stock
65. Which of the following would be owners of a corporation?
Common stockholders
Debenture holders
Participation preferred stockholders
Equipment trust bondholders
(A) I and III
(B) II and IV
(C) I, III, and IV
(D) II, III, and IV
66. You have a new client who is new to investing. They are concerned about taking too much risk. Which of the following investments could you tell them is the riskiest?
(A) Common stock
(B) Preferred stock
(C) Debentures
(D) GO bonds
67. Which of the following investments exposes an investor to the greatest risk?
(A) TUV subordinated debentures
(B) TUV mortgage bonds
(C) TUV common stock
(D) TUV preferred stock
68. Common stockholders have which of the following rights and privileges?
The right to receive monthly audited financial reports
The right to vote for cash dividends
The right to vote for stock splits
A residual claim to assets at dissolution
(A) I and II
(B) III and IV
(C) I, III, and IV
(D) II, III, and IV
69. Common stockholders have the right to vote for all of the following EXCEPT
cash dividends
stock dividends
stock splits
members of the board of directors
(A) I, II, and III
(B) III and IV
(C) I and II
(D) IV only
70. An investor owns 200 shares of JKL common stock. JKL stockholders can vote only by way of statutory voting. If JKL holds an election in which six candidates are running for three seats on the board, this investor could cast
(A) 600 votes for any one candidate
(B) 100 votes each for any six candidates
(C) 200 votes for each of the three positions
(D) Any of the above
71. Which type of voting benefits minority shareholders?
(A) Cumulative
(B) Statutory
(C) Regular
(D) Senior
72. An individual owns 2,000 shares of TUV common stock. TUV has four vacancies on the board of directors. If the voting is cumulative, the investor may vote in any of the following ways EXCEPT
(A) 4,000 votes for two candidates each
(B) 5,000 votes for one candidate and 3,000 votes for another candidate
(C) 3,000 votes each for three candidates
(D) 2,000 votes for four candidates each
73. Cain Weidman owns 1,000 shares of HIT Corp. HIT issues stock with cumulative voting. What is the maximum number of votes that Cain can cast for one candidate if the board of directors of HIT has four vacancies?
(A) 100
(B) 250
(C) 1,000
(D) 4,000
74. Macrohard Corp. was authorized to issue 2 million shares of common stock. Macrohard issued 1.1 million shares and subsequently repurchased 150,000 shares. How many of Macrohard’s shares remain outstanding?
(A) 150,000
(B) 900,000
(C) 950,000
(D) 1.85 million
75. MKR Corporation’s by laws have authorized 20 million shares of common stock. MKR has issued 12 million shares of common stock and has 2 million shares of treasury stock. How many shares of MKR common stock are authorized but still unissued?
(A) 2 million
(B) 6 million
(C) 10 million
(D) 8 million
76. Which of the following does NOT describe treasury stock?
(A) It has no voting rights.
(B) It is stock that was previously authorized but still unissued.
(C) It is issued stock that has been repurchased by the company.
(D) It has no dividends.
77. Treasury stock is
(A) U.S. government stock
(B) local government stock
(C) authorized but unissued stock
(D) repurchased stock
78. The par value of a common stock is
used for bookkeeping purposes
one dollar
adjusted for stock splits
the amount investors receive at maturity
(A) I and III
(B) I, II, and III
(C) II, III, and IV
(D) I, II, III, and IV
79. Which of the following changes the par value of a stock?
(A) a rights offering
(B) the issuer repurchasing some of its outstanding stock
(C) a stock split
(D) a cash dividend
80. The ex-dividend date as related to cash dividends is
the date that the stock price is reduced by the dividend amount
the date that the stock price is increased by the dividend amount
2 business days before the record date
2 business days after the trade date
(A) I and III
(B) I and IV
(C) II and III
(D) II and IV
81. A listed stock closed at $24.95 on the business day prior to the ex-dividend date. If the company previously announced a $0.30 dividend, what will be the opening price on the next business day?
(A) $24.35
(B) $24.65
(C) $24.95
(D) $25.25
82. One of your customers owns 1,000 shares of DIM common stock at $24. DIM declares a 20% stock dividend. On the ex-dividend date, your customer will own
1,000 shares
1,200 shares
stock at $20 per share
stock at $24 per share
(A) I and III
(B) I and IV
(C) II and III
(D) II and IV
83. EYEBM Corp. shares are trading at $55 per share when it declares a 5% stock dividend. After EYEBM pays the dividend, one of your clients who owned 500 shares now owns
(A) 500 shares valued at $57.73 per share
(B) 525 shares valued at $55.00 per share
(C) 550 shares valued at $55.00 per share
(D) 525 shares valued at $52.38 per share
84. Rule 145 applies to reclassification of securities in which of the following situations?
(A) Stock splits
(B) The issuance of convertible securities
(C) The issuance of non-voting common stock
(D) Consolidations
85. Unless otherwise exempt, all investors of penny stocks must receive
(A) a quarterly account statement
(B) a risk disclosure document
(C) an ODD
(D) a statement of additional information (SAI)
86. Which TWO of the following are TRUE regarding penny stocks?
They are Nasdaq securities.
They are non-Nasdaq securities.
They are stocks that trade under $1 per share.
They are stocks that trade under $5 per share.
(A) I and III
(B) I and IV
(C) II and III
(D) II and IV
87. An investor is recommended by a registered rep to purchase stock of DDDD Corporation. Currently, DDDD trades at $3 per share on the OTCBB. According to the “penny stock rule,” a registered rep usually needs a written suitability statement signed by the investor. All of the following are exemptions from the suitability statement requirement EXCEPT
(A) unsolicited transactions
(B) accredited investors
(C) a one-year customer of the broker-dealer
(D) a customer who has purchased two different penny stocks previously through the broker-dealer of the rep
88–103 Preferred Stock
88. Which of the following are TRUE about both preferred and common stock?
They are equity securities.
Dividends are determined by the issuer’s board of directors.
Holders have the right to vote for members of the board of directors.
(A) I and II
(B) I and III
(C) II and III
(D) I, II, and III
89. Which of the following are advantages of holding straight preferred stock over common stock?
A fixed dividend
More voting power
Preference in the event of issuer bankruptcy
The ability to receive par value at maturity
(A) I and II
(B) II and IV
(C) I and III
(D) I, III, and IV
90. Preferred dividends may be paid in the form of
cash
stock
product
(A) I only
(B) I and II
(C) I and III
(D) I, II, and III
91. Which TWO of the following are TRUE of preferred stock?
Holders have voting rights.
Holders do not have voting rights.
In the event of corporate bankruptcy, preferred stock is senior to common stock.
In the event of corporate bankruptcy, preferred stock is junior to common stock.
(A) I and III
(B) I and IV
(C) II and III
(D) II and IV
92. Interest rates have just increased. Investors would expect that the prices of their straight preferred stock would
(A) increase
(B) decrease
(C) remain the same
(D) first increase then decrease
93. A company has previously issued 4% of $100 par cumulative preferred stock. Over the first three years, the company paid out $9 in dividends. If the company announces a common dividend in the following year, how much does it owe preferred stockholders?
(A) $3
(B) $4
(C) $7
(D) $16
94. One of your customers wants to purchase preferred stock that would help them reduce inflation risk. Which of the following types of preferred stock would you recommend?
(A) Participating
(B) Convertible
(C) Cumulative
(D) Noncumulative
95. One of your clients wants to purchase preferred stock but wants to reduce the risk of inflation. You should recommend
(A) straight preferred stock
(B) callable preferred stock
(C) cumulative preferred stock
(D) convertible preferred stock
96. If DEF preferred stock ($100 par) is convertible into common stock for $20, what is the conversion ratio?
(A) 1 share
(B) 5 shares
(C) 20 shares
(D) 100 shares
97. An investor purchases a DEF 4% convertible preferred stock at $90. The conversion price is $25. If the common stock is trading one point below parity, what is the price of DEF common stock?
(A) $21.50
(B) $22.50
(C) $24.00
(D) $26.00
98. With everything else being equal, a preferred stockholder would expect __________ preferred stock to pay the highest dividend.
(A) convertible
(B) straight
(C) callable
(D) cumulative
99. What is the advantage to a corporation issuing callable preferred stock as compared to non-callable preferred stock?
(A) It allows the issuer to take advantage of high interest rates.
(B) The dividend rate on callable preferred stock is lower than that of non-callable preferred stock.
(C) It allows the issuer to issue preferred stock with a lower fixed dividend after the call date.
(D) Callable preferred stock usually has a longer maturity date.
100. Callable preferred stock is most advantageous to the issuer because
(A) the issuer can issue high-dividend stock
(B) the issuer can issue stock with a lower dividend
(C) the issuer can call in the stock at a price less than par value
(D) the issuer can replace stock with a higher dividend with stock with a lower dividend
101. Platinum Edge Corp. is offering 5% participating preferred stock. The 5% represents the
(A) minimum yearly dividend payment
(B) average yearly dividend payment
(C) maximum yearly dividend payment
(D) exact yearly dividend payment
102. In the event of corporate bankruptcy, which of the following preferred shareholders would be paid first?
(A) Variable preferred shareholders
(B) Prior preferred shareholders
(C) Participation preferred shareholders
(D) Callable preferred shareholders
103. The dividend rate on adjustable-rate preferred stock will vary depending on the
(A) Treasury bill rate
(B) Treasury note rate
(C) Treasury bond rate
(D) CPI
104–118 ADRs, Rights, and Warrants
104. Which of the following may be paid dividends?
(A) Right holders
(B) Warrant holders
(C) ADR holders
(D) All of the above
105. An ADR is
(A) a receipt for a foreign security trading in the United States
(B) a receipt for a foreign security trading in the United States and overseas
(C) a receipt for a U.S. security trading overseas
(D) a receipt for a U.S. security trading in the United States and overseas
106. All of the following are benefits of investing in ADRs EXCEPT
(A) the dividends are received in U.S. currency
(B) transactions are completed in U.S. currency
(C) it has low currency risk
(D) it allows U.S. investors to invest overseas
107. All of the following are characteristics of American depositary receipts EXCEPT
(A) they help U.S. companies gain access to foreign dollars
(B) investors do not receive the actual certificates
(C) investors can’t vote
(D) dividends are paid in U.S. dollars
108. Holders of American depositary receipts assume which of the following risks?
Liquidity risk
Foreign currency risk
Market risk
Political risk
(A) I, III, and IV
(B) II, III, and IV
(C) I, II, and III
(D) II and III
109. A corporation needs to raise additional capital. Which of the following would help the corporation meet its goal?
(A) Declaring a stock dividend to existing shareholders
(B) A rights distribution to existing shareholders
(C) Calling in their convertible bonds
(D) Splitting their stock 2 for 1
110. All of the following are TRUE about rights offerings EXCEPT
(A) they are short-term
(B) each share of outstanding common stock receives one right
(C) they typically have a standby underwriter
(D) rights are automatically received by preferred stockholders
111. A corporation offering additional shares to existing shareholders would be made through a(n)
(A) secondary offering
(B) offering of warrants
(C) rights offering
(D) offering of convertible preferred stock
112. The Hanson Hilstrand Corp. is issuing new stock through a rights offering. If the stock trades at $30 and it costs $24 plus two rights to buy a new share, what is the theoretical value of a right cum-rights (prior to ex-rights)?
(A) $0.50
(B) $0.75
(C) $1.00
(D) $2.00
113. One of your clients owns 80 shares of common stock of a company issuing new shares in a rights offering. The stock trades at $12 per share. The company requires that investors must submit nine rights plus $10 to purchase a new share of stock. Fractional shares automatically become whole shares. How many additional shares may your client purchase, and what is the amount of money that needs to be paid for the new shares?
8 shares
9 shares
$80 paid
$90 paid
(A) I and III
(B) I and IV
(C) II and III
(D) II and IV
114. Global International World Corporation is proposing an additional public offering of its common stock. According to the terms of its rights offering, current shareholders can purchase the stock for $35 per share plus five rights. If the market price of Global International is $45 after the ex-right date, what is the value of one right?
(A) $1.00
(B) $1.50
(C) $2.00
(D) $5.00
115. All of the following are TRUE of warrants EXCEPT
they pay dividends quarterly
they are equity securities
they are used to buy common stock at a fixed price
they give the holder a leveraged position
(A) I and II
(B) II and III
(C) II, III, and IV
(D) III and IV
116. Which of the following is NOT TRUE regarding warrants?
(A) They are marketable securities.
(B) They offer investors a long-term right to buy stock at a fixed price.
(C) They have voting rights.
(D) Investors do not receive dividends.
117. All of the following are TRUE of warrants EXCEPT
(A) they have a longer life than rights
(B) they are non-marketable securities
(C) they are typically issued in units
(D) the exercise price is above the current market price of the common stock when issued
118. Which of the following are TRUE regarding warrants?
Warrants are often issued with a corporation’s other securities to make an offering more attractive to investors.
Warrants provide a perpetual interest in an issuer’s common stock.
Holders of warrants have no voting rights.
(A) I and II
(B) I and III
(C) II and III
(D) I, II, and III
Chapter 3
Corporate and U.S. Government Debt Securities
When issuers want to borrow money from the public, they issue debt securities. These issuers include corporations, local governments (municipal bonds), and the U.S. government. Unlike equity securities, holders of debt securities are creditors, not owners.
The Problems You’ll Work On
In this chapter, you’ll work on questions regarding the following:
Understanding the different types of bonds
Determining bond prices and yields
Comparing the different types of bonds
Seeing the benefits and risks of convertible bonds
Recognizing the different types of U.S. government securities and their tax benefits
Comparing money market instruments
Calculating accrued interest when bonds are sold between coupon dates
Understanding collateralized mortgage obligations (CMOs) and collateralized debt obligations (CDOs)
What to Watch Out For
Keep the following tips in mind as you answer questions in this chapter:
Be aware of words that can change the answer you’re looking for, such as EXCEPT or NOT.
Don’t jump too quickly to answer a question. Make sure you read each question and answer choice completely before choosing an answer.
Make sure you understand which type of bond the question is talking about prior to answering because many differences exist.
Double-check your math when doing calculations.
119–138 Bond Terms, Types, and Traits
119. Which of the following securities is exempt from the Trust Indenture Act of 1939?
T-bonds
GO bonds
Equipment trust bonds
Revenue bonds
(A) I only
(B) II and III
(C) I, II, and IV
(D) I, III, and IV
120. Dee Plump, an investor, owns a TUB 5% convertible bond purchased at 103 with five years until maturity. If they hold the bond until maturity, Dee will receive
(A) $970 plus any outstanding interest
(B) $1,000 plus any outstanding interest
(C) $1,015 plus any outstanding interest
(D) $1,030 plus any outstanding interest
121. One of your clients purchased a 4% ABC convertible bond yielding 5% and convertible at $50. If your client holds the bond until maturity, how much will they receive?
(A) $1,000
(B) $1,020
(C) $1,025
(D) $1,050
122. ABC Corporate Bonds are quoted at 101⅜. How much would an investor purchasing ten of these bonds pay?
(A) $1,013.75
(B) $1,013.80
(C) $10,137.50
(D) $10,138.00
123. A bond has increased in value by 50 basis points, which is equal to which TWO of the following?
0.50%
5%
$5
$50
(A) I and III
(B) I and IV
(C) II and III
(D) II and IV
124. An investor purchased a 4% corporate bond at 98 with ten years to maturity. If the bond is currently trading at 101, how much interest will the investor receive next time they get paid?
(A) $19.60
(B) $20.00
(C) $20.20
(D) $40.00
125. A corporate bond indenture would include which of the following?
The nominal yield
The rating
Any collateral backing the bond
The yield to maturity
(A) I and II
(B) I and III
(C) I, III, and IV
(D) III and IV
126. The indenture of a corporate bond includes the
(A) current yield
(B) yield to maturity
(C) yield to call
(D) nominal yield
127. One of your clients is interested in bonds with a relatively high level of regular income with only a moderate amount of risk. Which of the following would you recommend?
(A) High-yield bonds
(B) Convertible bonds
(C) Mortgage bonds
(D) Income bonds
128. HIJ Corp. has issued $30 million worth of convertible mortgage bonds, which are convertible for $25. The bonds are callable beginning in March 2020, while the maturity date is March 2040. The bond trades at 98, and the stock trades at $24. The bonds are secured by
(A) rolling stock
(B) the full faith and credit of HIJ Corp.
(C) securities owned by HIJ Corp.
(D) a lien on property owned by HIJ Corp.
129. Corporations may issue which of the following debt securities?
Equipment trust bonds
Mortgage bonds
Double-barreled bonds
Revenue bonds
(A) I and IV
(B) I and II
(C) II, III, and IV
(D) I, II, III, and IV
130. The type of secured bond typically issued by transportation companies is called
(A) a guaranteed bond
(B) a mortgage bond
(C) an equipment trust bond
(D) a collateral trust bond
131. A collateral trust bond is
(A) mainly issued by transportation companies
(B) backed by stocks and bonds owned by the issuer
(C) issued by corporations in bankruptcy
(D) backed by the assets of a parent company
132. Which of the following BEST describes a guaranteed bond?
(A) one that is mainly issued by transportation companies
(B) one that is backed by the assets of another company
(C) one that is issued by corporations in bankruptcy
(D) one that is backed by stocks and bonds held by the issuer
133. Which of the following bonds normally trades without accrued interest?
(A) Treasury notes
(B) Subordinated debentures
(C) Debentures
(D) Income bonds
134. Which type of corporate bond is not backed by any collateral?
(A) Mortgage bonds
(B) Guaranteed bonds
(C) Debentures
(D) Collateral trusts
135. You have a customer who is risk-averse and wants to start investing in bonds. Which of the following should you NOT recommend?
(A) TIPS
(B) Income bonds
(C) AAA rated corporate bonds
(D) T-bonds
136. Mrs. Jones wants to put away money for an 8-year-old child’s college tuition. Which of the following investments would be MOST suitable to meet their needs?
(A) Zero-coupon bonds
(B) Growth company common stocks
(C) Growth company preferred stocks
(D) Certificates of deposit
137. Which of the following are TRUE regarding Eurodollar bonds?
They must be registered with the SEC.
They are U.S.-dollar denominated.
They are issued by non-American companies outside of the United States and the issuer’s home state.
They are subject to currency risk.
(A) II, III, and IV
(B) I, II and IV
(C) I, II, and III
(D) I, III, and IV
138. Bonds issued by national governments are referred to as
(A) ADRs
(B) sovereign bonds
(C) Eurodollar bonds
(D) global bonds
139–156 Price and Yield Calculations
139. Due to an increase in the money supply, inflation has been running rampant. As a way of combatting the high inflation, the Fed decides to increase the discount rate. Holders of bonds with fixed coupon rates would expect the prices of their bonds to
(A) increase
(B) decrease
(C) remain the same
(D) fluctuate
140. The coupon rate of a bond is the same as the
(A) current yield
(B) nominal yield
(C) yield to call
(D) yield to maturity
141. A 4% bond is purchased at 92 with 25 years until maturity. What is the current yield?
(A) 3.65%
(B) 4%
(C) 4.35%
(D) 4.66%
142. What is the current yield on a T-bond with an initial offering price of $1,000, a current market price of $101.16, and a coupon rate of 4.25%?
(A) 4.19%
(B) 4.25%
(C) 4.37%
(D) 4.41%
143. The basis of a bond is its
(A) yield to call
(B) current yield
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