Series 7 Practice Quiz
Questions: 16 · 10 minutes
1. A customer wants an order executed promptly at the best price currently available and does not specify a minimum or maximum price. Which order is most appropriate?
A limit order
A stop-limit order
A stop order
A market order
2. Before recommending a mutual fund purchase, a representative learns that the client owns other funds in the same family and plans another purchase soon. What should the representative do?
Split the investment into separate orders without reviewing total holdings
Assess possible breakpoint eligibility, rights of accumulation, and letter-of-intent considerations
Ignore the other holdings because each transaction stands alone
Recommend the purchase structure with the highest available sales charge
3. A corporation sells newly issued shares to investors and receives the proceeds. In which market does this transaction occur?
The primary market
The secondary market
The over-the-counter secondary market
The exchange auction market
4. How is a mutual fund's net asset value per share generally calculated?
Assets minus liabilities, divided by shares outstanding
Offering price minus the fund's operating expenses
Total portfolio purchases divided by shares redeemed
Annual distributions divided by the number of shareholders
5. If a corporation is liquidated, which investor generally has a claim on corporate assets ahead of both preferred and common stockholders?
A common stockholder
A preferred stockholder
A corporate bondholder
A warrant holder
6. A representative notices that a customer appears to be dividing cash deposits into smaller amounts to avoid reporting attention. What is the most appropriate response?
Promptly notify the appropriate supervisor or compliance contact and follow the firm's anti-money-laundering procedures
Confront the customer and demand an immediate explanation
Ignore the pattern because each individual deposit is smaller
Tell the customer that a suspicious activity report will be filed
7. An investor owns 100 shares of a stock, expects little near-term movement, and wants additional income while accepting that gains may be capped. Which strategy best matches those goals?
Sell the stock short
Buy a protective put
Buy an additional call
Write a covered call
8. An investor expects a stock to rise and wants an options position whose maximum possible loss is limited to the premium paid. Which position best fits?
Sell an uncovered call
Buy a call
Sell a put
Buy a put
9. Which formula calculates a bond's current yield?
Market price divided by annual interest
Annual interest divided by par value
Annual interest divided by current market price
Capital gain divided by years to maturity
10. In a variable annuity, who generally bears the investment risk associated with the performance of the separate account?
The insurance company, which guarantees the account's return
The contract owner
The Securities Investor Protection Corporation
The selling broker-dealer
11. An investor owns a fixed-rate corporate bond. If market interest rates rise significantly while the issuer's credit quality remains unchanged, what will most likely happen to the bond's market price?
It will rise because the coupon becomes more valuable
It will fall because newer bonds may offer higher rates
It will remain at par because its coupon is fixed
It will automatically adjust to the new interest rate
12. A broadly diversified stock portfolio declines during an economy-wide recession. Which risk is most clearly illustrated?
Market, or systematic, risk
Liquidity risk caused by a lack of buyers
Business risk specific to one issuer
Call risk affecting redeemable securities
13. A customer places a sell stop order below the current market price. Once the order's specified trigger condition is met, what does it generally become?
A sale guaranteed at the stop price
A canceled order requiring customer confirmation
A market order for execution at the next available price
A limit order at the stop price
14. A client owns stock and wants protection against a substantial decline without selling the shares. Which strategy most directly provides that protection?
Write an uncovered call option on the stock
Sell a put option on the stock
Buy a call option on the stock
Buy a put option on the stock
15. What is the primary purpose of stock rights issued to existing common shareholders?
To provide fixed interest payments from the corporation
To let shareholders sell stock later at a preset price
To let shareholders buy new shares and help maintain proportional ownership
To give shareholders voting authority over bond trustees
16. A proposed retail communication states that an investment offers a guaranteed 12% annual return with no risk. What is the primary concern?
Retail communications may never contain a percentage
Only institutional investors may receive investment projections
Communications may discuss returns only when a security pays dividends
The guarantee is misleading because securities returns and risks cannot be presented that way