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Series 7 General Securities Representative Qualification Examination (GS) Questions and Answers

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Questions # 1:

Which of the following is not in the subscription agreement for a limited partnership offering?

Options:

identification of the limited partners

qualification of the limited partners for the subscription

granting of power of attorney to the limited partners

a record of sales of the partnership interests

Answer

Explanation

granting of power of attorney to the limited partners. The other three choices are in the subscription agreement. Power of attorney is granted to the general partner, not the limited partners.

Questions # 2:

In a competitive bidding for mortgage bonds of a large public utility the winning underwriter is determined by:

Options:

the highest dollar amount paid to the issuer

the lowest net interest cost to the issuer

the shortest maturity date for the bonds

the refunding and sinking fund terms in the indenture

Answer

Explanation

the lowest net interest cost to the issuer. All competitive bids are based upon the lowest interest cost.

Questions # 3:

How much currency is one mil worth?

Options:

one-tenth of one cent

one-tenth of $1

one-tenth of $100

one-tenth of $1,000

Answer

Explanation

one-tenth of one cent. A point equals $10 and a basis point equals ten cents.

Questions # 4:

Which of the following statements regarding mutual funds is true?

Options:

the custodian can also be the transfer agent

the sponsor receives a management fee based on the fund’s total assets

the terms “management company” and “investment advisor” are interchangeable

the management company receives a portion of the sales load for managing the fund assets

Answer

Explanation

the custodian can also be the transfer agent. This has become increasingly common. None of the other choices are correct.

Questions # 5:

The minimum denomination for a US treasury bond is:

Options:

$100

$1,000

$10,000

$100,000

Answer

Explanation

$1,000. This is the minimum denomination. Normally, US treasury bonds are in much larger denominations.

Questions # 6:

What type of mutual fund would invest in equities and bonds?

Options:

dual purpose

balanced

technology

growth

Answer

Explanation

balanced. These funds invest for growth with stock and income with bonds.

Questions # 7:

Bubba wants to buy a $4 convertible preferred with that has a $50 par value and is exchangeable for common stock at $47.50. If the preferred stock is trading at 52, what does Bubba calculate as the common stock price in order to be at parity with the preferred?

Options:

47.50

52.00

a little less than 49.38

a little more than 54.50

Answer

Explanation

a little less than 49.38. Bubba needs a calculator to divide the par value of the preferred stock by the price of the common stock. He then divides the result into the price at which the preferred stock is trading.50 divided by 47.50 = 1.05352 divided by 1.053 = 49.38.

Questions # 8:

Bubba buys “double-barreled” municipal bonds. What is the source of guaranteed repayment on these bonds?

Options:

a specific municipal project plus a federal subsidy

two specific municipal projects

all projects of the issuing municipality

one specific municipal project plus the full financial strength of the issuer

Answer

Explanation

one specific municipal project plus the full financial strength of the issuer. Double -barreled bonds are first payable from a specific project, but are further guaranteed by the issuing municipality.

Questions # 9:

Bubba Corporation issued bonds that pay interest on January 15 and July 15 each year until maturity. An investor purchasing these bonds on Monday, April 12, must pay the contract price plus accrued interest for:

Options:

87 days

89 days

93 days

90 days

Answer

Explanation

90 days. Interest accrues from the coupon date to the settlement date. A regular way purchase on April 12 will settle on April 15. corporate bonds are figures on 30-day months, regardless of the actual number of days in the month. The year is considered 360 days. Therefore, interest is calculated for 16 days in January plus 30 each for February and March plus 14 for April.

Questions # 10:

An excerpt from a recent tombstone ad reveals bonds offered publicly at 101.

Why were they priced at a premium?

Options:

to enable investors to establish a tax loss when the bonds are redeemed at maturity

to reflect prevailing credit ratings and market conditions for the issuer

to provide the issuer with a larger deduction from pre-tax earnings for higher than usual interest payments

to comply with SEC rules mandating such pricing for debt issues maturing in the year 2000 and thereafter

Answer

Explanation

to reflect prevailing credit ratings and market conditions for the issuer. Premiums or discounts are used in bond offerings to bring the yield in line with current market conditions.

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