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Home FINRA Series 7

FINRA Series 7 Exam Practice Questions (P. 2)

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Question #11
Common stocks for which of the following industries are most likely to decline in value when interest rates rise?
  1. A
    automobile manufacturers
  2. B
    airlines
  3. C
    stock brokers
  4. D
    public utility companies

Correct Answer:
D
public utility companies. Interest rates most affect the companies with the greatest amount of debt. Public utility companies are highly leveraged.
Hence, they most likely incur the largest effect of rising interest rates.

Question #12
Convertible preferred stock has all of the following characteristics except:
  1. A
    a lower dividend rate than non-convertible preferred
  2. B
    a dilution of earnings if converted into common stock
  3. C
    a requirement for shareholders to always accept the call price when called
  4. D
    required dividend payments to shareholders before any dividends are paid to holders of common stock

Correct Answer:
C
a requirement for shareholders to always accept the call price when called. All of the other statements are true "except" this one. Convertible preferred shareholders have a n opportunity to convert to common stock. There is no forced call price.

Question #13
Bubba buys a 5% bond that matures in 15 years with a 5.10 basis. How much did he pay for the bond?
  1. A
    5.00
  2. B
    98.96
  3. C
    100.00
  4. D
    105.10

Correct Answer:
B
98.96. A calculator is not required for this. Even Bubba knows the bond is obviously trading at a slight discount by yielding 5.10% instead of the coupon rate of 5%. If the yield was the same as the coupon rate, the price is 100.00.

Question #14
Bonds are most often quoted as a percentage of:
  1. A
    face value
  2. B
    book value
  3. C
    market value
  4. D
    whatever value the broker says

Correct Answer:
A
face value. The price is 100.00 if the yield is the same as the coupon rate. A price of less than 100.00 means the yield is higher than the coupon rate.
A price of more than 100.00 means the yield is lower than the coupon rate. The prices are a percentage of 100.00. However, treasury bonds and municipal bonds are not quoted in this way.

Question #15
Which of the following is a right for shareholders of common stock?
  1. A
    the right to have the stock price increase
  2. B
    the right to vote about important matters of the company
  3. C
    the right to dividends
  4. D
    both B and C

Correct Answer:
B
the right to vote about important matters of the company. Shareholders have no expectation of stock price increase or dividends. They are entitled to receive dividends only if the board of directors declares them.

Question #16
Who owns a corporation?
  1. A
    the owners of debentures
  2. B
    the holders of common stock
  3. C
    the holders of common stock and the holders of preferred stock
  4. D
    the government

Correct Answer:
C
the holders of common stock and the holders of preferred stock. The holders of all classes of stock are the owners. Each stock class has separate privileges, but all represent ownership. Even if the government is an owner, it holds shares of stock.

Question #17
Which of the following is true of treasury stock?
  1. A
    it has voting rights
  2. B
    it is entitled to receive dividends
  3. C
    it is stock that has not been issued
  4. D
    it is stock that has been reacquired by the issuer

Correct Answer:
D
it is stock that has been reacquired by the issuer. Treasury stock has no voting rights and is not entitled to receive dividends. The shares have been issued but are no longer outstanding in the market.

Question #18
Bubba decides to buy equity securities. Which of the following statements is always true about what Bubba is buying?
  1. A
    they are readily marketable
  2. B
    they have a fixed rate of return
  3. C
    they have a fixed maturity date
  4. D
    they are not secured by collateral

Correct Answer:
D
they are not secured by collateral. Equity is ownership, which has no collateral securityor any other kind of security such as a guaranteed return, maturity, or marketability.

Question #19
Which of the following securities provides the longest term of option privilege?
  1. A
    puts
  2. B
    calls
  3. C
    warrants
  4. D
    rights

Correct Answer:
C
warrants. All of the others always have fixed maturity dates. Warrants often have no finite life and, if they do, it is a very long time.

Question #20
A company may pay a declared dividend in which of the following ways:
  1. A
    with stock in a subsidiary company
  2. B
    with property
  3. C
    with cash
  4. D
    all of the above

Correct Answer:
D
all of the above. Dividends can be paid in all of these ways. They can also be paid with treasury stock or authorized but unissued stock.

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