Series 7 Exam Practice Test 29

1. What is the maximum loss on a debit spread?

A. The difference between the premium paid and the premium received

B. The difference between the two strike prices multiplied by 100, less the premium paid, plus the premium received

C. The difference between the two strike prices multiplied by 100, less the premium paid

D. The difference between the two strike prices multiplied by 100

2. Sal Gold is new to investing and wants to purchase a security that will provide him with current income with minimal risk. Which of the following are you LEAST likely to recommend?

A. An income fund

B. Treasury bonds

C. An international fund

D. AA rated municipal bonds

3. Which of the following is the issuer and guarantor of all listed options?

A. The OCC

B. The OAA

C. The ODD

D. The CBOE

4. If your customer, William Goate, purchases shares in a municipal bond fund, which of the following statements is TRUE?

A. Dividends are subject to alternative minimum tax.

B. Dividends are taxable to all investors.

C. Capital gains distributions are taxable.

D. Capital gains distributions are not taxable.

5. An investor opens a margin account by purchasing 1,000 shares of ABC at $15 per share and shorting 1,000 shares of DEF at $12 per share. What is the investor's margin call as a result of these transactions?

A. $1,500

B. $3,000

C. $13,500

D. $27,000

6. These municipal notes provide interim financing for a municipality that's waiting for a grant from the U.S. government.

A. BANs

B. TRANs

C. GANs

D. CLNs

7. An investor is holding 1 ABC Oct 35 call option. Which of the following option positions, if purchased by this customer, would create a long straddle?

A. Short 1 ABC Nov 35 call option

B. Short 1 ABC Oct 30 call option

C. Long 1 ABC Oct 40 call option

D. Long 1 ABC Oct 35 put option

8. Luke Landworker holds 10 XYX May 30 calls. XYX increases to $40, and he exercises the calls. Luke tells his registered rep to sell the stock immediately after purchase. If these trades are executed in a margin account, how much does Luke have to deposit?

A. $3,000

B. $30,000

C. $35,000

D. No deposit is required.

9. Regarding margin accounts, which two of the following are TRUE?

I. Minimum maintenance on a long account is 25 percent.

II. Minimum maintenance on a short account is 25 percent.

III. Minimum maintenance on a long account is 30 percent.

IV. Minimum maintenance on a short account is 30 percent.

A. I and II

B. I and IV

C. II and III

D. III and IV

10. Use the following exhibit to answer this question:

Balance Sheet of ABCD Corp.
Assets		Liabilities
Cash	$300,000	Accounts payable	$300,000
Accounts receivable	$1,500,000	Taxes payable	$250,000
Inventory	$1,200,000	Bonds maturing this year	$800,000
Goodwill	$2,000,000	Bonds maturing in 5 years	$2,000,000
Machinery	$1,500,000
Land	$5,000,000

What is the net worth of ABCD Corporation?

A. $3,150,000

B. $1,650,000

C. $8,150,000

D. $10,150,000

11. The initial expiration for standard exchange-listed options is

A. 1 month from the issue date

B. 3 months from the issue date

C. 6 months from the issue date

D. 9 months from the issue date

12. One of the advantages of portfolio margin is that it allows

A. smaller investors the opportunity to purchase securities on margin

B. less sophisticated investors a chance to purchase securities on margin

C. investors to avoid maintenance calls

D. investors greater leverage

13. Which of the following statements regarding municipal bonds with call provisions is TRUE?

A. Bonds are likely to be called when interest rates fall.

B. Call provisions favor investors.

C. Bonds are likely to be called when interest rates rise.

D. Call provisions are not advantageous to issuers.

14. AylDec Corporation common stock is currently trading in the market for $22 per share. AylDec Corp. pays an annual dividend of $0.60 per share and has an earnings per share (EPS) of $4. What is the PE ratio?

A. 4.50

B. 5

C. 5.50

D. Cannot be determined

15. The Order Audit Trail System tracks the

A. execution of an order only

B. cancellation of an order only

C. entire life of an order from entry to execution

D. None of the above

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Series 7 Exam Practice Test 29

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