Series-7 Exam Study Guide Free Practice Test LAST UPDATED DATE May 04, 2023
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The GS exam consists of 125 multiple-choice questions and must be completed within three hours and forty-five minutes. The exam is broken down into four main sections: (1) the regulatory environment, (2) securities products and their risks, (3) customer accounts and orders, and (4) insight into industry best practices. Candidates need a score of 72% or higher to pass the exam.
NEW QUESTION # 125
In comparing the premium cost of a LEAPS option with a premium of a traditional option on the same security and same strike price, which of the following is generally true?
- A. LEAPS premiums do not consider time value
- B. the LEAPS premium will be higher than the traditional option premium
- C. the premiums will be approximately the same
- D. the premium for the traditional option will be higher than the LEAPS option premium
Answer: B
Explanation:
the LEAPS premium will be higher than the traditional option premium. Because LEAPS have a longer time until expiration than traditional options, the premium should be higher.
NEW QUESTION # 126
Mutual fund salespersons may not represent that a product is like of safer than:
- A. all of the above
- B. an insurance policy
- C. a corporate debt instrument
- D. a fixed annuity
Answer: A
Explanation:
Explanation/Reference:
Explanation: all of the above. A broker/dealer must demonstrate that what is said or printed about a product is not fraudulent. Representing a mutual fund as safer than any of the choices above is likely fraudulent.
NEW QUESTION # 127
The initial Federal Reserve Bank margin requirement is set at 60% and Bubba purchases 100 shares of XYZ at $100 per share. He deposits $6,000 of the $10,000 purchase price in his account.
If XYZ increases in value to $150 per share, how much excess equity would Bubba have in his account?
- A. $3,000
- B. $1,500
- C. $1,000
- D. $2,000
Answer: D
Explanation:
$2,000. Bubba started with $6,000 of equity and a debit balance of $4,000. The market value of his XYZ stock increased by $5,000 ($15,000 - $10,000). Therefore, his equity increased to $11,000. Since Bubba only needs 60% equity, his Reg T requirement is $9,000 ($15,000 x 60%). His equity exceeds the requirement by $2,000.
NEW QUESTION # 128
Bubba buys municipal bonds with a $100,000 principal amount at 89 on margin. His account has no cash or securities.
What is his minimum required deposit?
- A. $5,080
- B. $50,000
- C. $13,350
- D. $22,500
Answer: C
Explanation:
$13,350. Munis are not subject to Reg
T. The NYSE maintenance requirement on munis is the greater of 15% of the market value or 7% of the principal amount.
NEW QUESTION # 129
A corporation makes a rights offering to raise $10 million of new capital by issuing one million shares of common stock. If it already has six million shares outstanding at the time of the offering.
How many rights will the corporation distribute to its shareholders?
- A. one million
- B. sixteen million
- C. six million
- D. ten million
Answer: C
Explanation:
six million. One right for each outstanding share is distributed.
NEW QUESTION # 130
A provision under which an underwriter can cancel a proposed public offering due to some unforeseen occurrence is known as a:
- A. contra-market clause
- B. fill or kill provision
- C. market-out clause
- D. blue sky provision
Answer: C
Explanation:
Explanation/Reference:
Explanation: market-out clause. This is used only in the case of some unusual occurrence.
NEW QUESTION # 131
When pricing callable municipal bonds, the "price to call" is based upon which of the following?
- A. partial calls
- B. catastrophe calls
- C. sinking fund calls
- D. in-whole calls
Answer: D
Explanation:
Explanation/Reference:
Explanation: in-whole calls. Price to call computations are based upon in-whole calls only. These calls will result in all bondholders being called simultaneously, thus guaranteeing a minimum yield to all.
NEW QUESTION # 132
Which of the following is not a characteristic of treasury bills?
- A. their payments are exempt from state income tax
- B. the bid price is higher than the offer price
- C. they are quoted on yield-to-maturity percentages
- D. they mature one to three years from the date of issuance
Answer: D
Explanation:
they mature one to three years from the date of issuance. Remember the question asks what is "not" a characteristic of treasury bills. The other choices are aspects of treasury bills, which most commonly have maturities of 90 days but never longer than one year.
NEW QUESTION # 133
Municipalities are most likely to issue notes for which of the following purposes?
- A. long-term financing
- B. repairs to infrastructure
- C. short-term cash needs
- D. federal income tax payments
Answer: C
Explanation:
short-term cash needs. Notes are generally used for short-term needs.
NEW QUESTION # 134
In a firm commitment offering, any shares that are not sold are:
- A. transferred to treasury stock
- B. listed in the over-the-counter market
- C. owned by the members of the syndicate
- D. returned to the issuing corporation
Answer: C
Explanation:
owned by the members of the syndicate. In a firm commitment the underwriter buys the securities from the issuing company. If they don't sell to the public, they are owned by the underwriters.
NEW QUESTION # 135
Which of the following statements is not true about exchange traded options?
- A. they are adjusted for cash dividends
- B. they are adjusted for stock splits
- C. they are adjusted for reverse splits
- D. they are adjusted for stock dividends
Answer: A
Explanation:
Explanation/Reference:
Explanation: they are adjusted for cash dividends. This is the statement that is "not" true.
NEW QUESTION # 136
The FINRA markup policy applies to:
- A. mutual fund sales
- B. agency sales OTC
- C. new issues of corporate securities
- D. principal transactions in municipal bonds
Answer: B
Explanation:
agency sales OTC. Markup policy applies to basically all securities other than government and municipal offerings expect where the security is offered under a current prospectus. Choices C and D are offered under a prospectus. Choice B involves municipal securities. Therefore, choice A is the only correct answer.
NEW QUESTION # 137
Bubba's order to purchase investment company shares must be executed at a price based upon the net asset value of the shares:
- A. next computed after receipt of the order by the dealer
- B. computed the previous day at the close of the NYSE
- C. last computed before receipt of the order by the dealer
- D. computed the same day the order is received by the dealer
Answer: A
Explanation:
Explanation/Reference:
Explanation: next computed after receipt of the order by the dealer. This is called "forward pricing".
Generally, the price is computed as of the close of the market on the day of the order. However, if the order is received after this computation, the order is executed based upon the next day calculation.
NEW QUESTION # 138
The maximum contribution an employer may make to a SEP-IRA is:
- A. 25% of employee compensation
- B. 100% of employee compensation
- C. $4,000
- D. $5,000
Answer: A
Explanation:
25% of employee compensation. There is also a dollar cap that is has an annual cost-of-living adjustment.
NEW QUESTION # 139
Which of the following is true about option prices?
- A. premiums on options of higher-priced stocks are usually greater than on lower-priced stocks
- B. premiums on options of volatile stocks are usually larger than on less volatile stocks
- C. premiums on options for listed stocks are usually greater than on unlisted stocks
- D. premiums on options of well-known companies are usually larger than on lesser-known companies
Answer: B
Explanation:
Explanation/Reference:
Explanation: premiums on options of volatile stocks are usually larger than on less volatile stocks. The likelihood of exercise increases with the volatility of a stock. Therefore, a higher premium is demanded.
NEW QUESTION # 140
Who is responsible for verifying that limited partners meet net worth and income requirements?
- A. the general partner
- B. the sponsor
- C. the registered representative
- D. the limited partners
Answer: C
Explanation:
Explanation/Reference:
Explanation: the registered representative. Assuring that limited partners meet net wroth and income requirements is the responsibility of the registered representative.
NEW QUESTION # 141
Which of the following is the least important method of money control exercised by the Federal Reserve?
- A. discount rate
- B. open market operations
- C. reserve requirements
- D. Regulation T
Answer: D
Explanation:
Explanation/Reference:
Explanation: Regulation T.
Because this regulates brokers extending credit to customers, it is important to the securities industry but does not have an extensive effect on the general economy.
NEW QUESTION # 142
Bubba buys a US treasury bond. The interest he earns is:
- A. subject to federal income tax but exempt from state income tax
- B. subject to state income tax but exempt from federal income tax
- C. subject to federal and state income tax
- D. exempt from federal and state income tax
Answer: A
Explanation:
Explanation/Reference:
Explanation: subject to federal income tax but exempt from state income tax. The interest on US government securities is taxed by the US government but not by state governments. The opposite is true of bonds issued by a state, which are exempt from federal tax but subject to state taxes -except for taxes of the state that issues them.
NEW QUESTION # 143
Bubba entered an order to sell long 100 shares of XYZ at 38.75 stop limit. Thereafter, the following round-lot transactions occurred: 38.75, 38.65, 38.50.
At what price was Bubba's order executed?
- A. it was never executed
- B. 38.50
- C. 38.65
- D. 38.75
Answer: A
Explanation:
it was never executed. The first transaction at 38.75 elected the order, but since it was both a stop order and a limit order, there was never another transaction at 38.75. Consequently, Bubba's order was never executed.
NEW QUESTION # 144
Bubba buys one XYZ October 80 put and sells one XYZ October 70 put.
What is his position called?
- A. combination
- B. calendar spread
- C. straddle
- D. money spread
Answer: D
Explanation:
Explanation/Reference:
Explanation: money spread. Since the strike prices are different, but not the expiration date, this is a money spread (sometimes called a "price spread" or a "vertical spread").
NEW QUESTION # 145
Bubba entered an order to sell long 100 shares of XYZ at 38.75 stop limit. Thereafter, the following round- lot transactions occurred: 38.75, 38.65, 38.50.
At what price was Bubba's order executed?
- A. it was never executed
- B. 38.50
- C. 38.65
- D. 38.75
Answer: A
Explanation:
Explanation/Reference:
Explanation: it was never executed. The first transaction at 38.75 elected the order, but since it was both a stop order and a limit order, there was never another transaction at 38.75. Consequently, Bubba's order was never executed.
NEW QUESTION # 146
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