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

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Viewing questions 61-70 out of questions

Questions # 61:

Which of the following pairs of terms are synonyms in connection with most mutual funds?

Options:

net asset value and offering price

selling price and bid price

net asset value and redemption price

bid price and management fee

Answer

Explanation

net asset value and redemption price. Investors redeeming shares of mutual funds receive the net asset value.

Questions # 62:

Municipal bonds would be least attractive as an investment for which of the following?

Options:

an insurance company

a pension fund

a commercial bank

the executive officer of an industrial corporation in the highest income tax bracket

Answer

Explanation

a pension fund. Since the pension fund does not pay income tax, the tax benefits of the municipal bonds are not realized.

Questions # 63:

How much money is a concession of 3/8 worth for one municipal bond?

Options:

$0.375

$3.75

$37.50

$375.00

Answer

Explanation

$3.75. Three-eighths of a $1,000 bond with a par price of 100.00 equals $3.75.

Questions # 64:

Hypothecation usually refers to which of the following?

Options:

forecasting the market based upon past performance

pledging securities as collateral

determining a reasonable offering price for a new issue

none of the above

Answer

Explanation

pledging securities as collateral. To hypothecate securities is to pledge them.

Questions # 65:

The preferred stock of Greatest Technology Corporation has a $100 par and is convertible into four shares of common stock. The preferred is trading at 104.50. The preferred is callable at 101. If the common stock price is presently 27.89, which of the following actions would be a successful arbitrage:

Options:

purchase 400 shares of common stock and sell 100 shares of preferred stock as “short exempt” (that is, the sale is exempt from the uptick rule)

purchase the preferred stock and sell an appropriate amount of the common stock “short exempt”

purchase both the common and the preferred stocks as a hedge against further market risk

purchase the preferred stock and let it be called, which is inevitable at these market prices

Answer

Explanation

purchase the preferred stock and sell an appropriate amount of the common stock “short exempt”. Arbitrage is the nearly simultaneous purchase and sale of equal securities in different markets for a profit. Selling four shares of common stock for every one share of preferred stock purchased provides a profit. The transactions involve the same number of common shares because the preferred is convertible to common at a four to one ratio.

Questions # 66:

What expression is used to describe the application of income and revenues derived from the operation of a facility financed from proceeds of a revenue bond?

Options:

debt service

flow of funds

revenue funding

disbursement of priorities

Answer

Explanation

flow of funds. This is the definition of the term flow of funds.

Questions # 67:

The FINRA markup policy applies to:

Options:

agency sales OTC

principal transactions in municipal bonds

mutual fund sales

new issues of corporate securities

Answer

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.

Questions # 68:

Under what circumstances may a registered investment company change its investment objective?

Options:

after SEC approval

after it obtains a new charter from the state secretary

after approval by a majority vote of the shareholders

after providing notice that is recorded in the Federal Register

Answer

Explanation

after approval by a majority vote of the shareholders. All vital interests of the shareholders are subject to their majority vote.

Questions # 69:

Which of the following does not issue debt securities that trade in the open market?

Options:

Fannie Mae

Freddie Mac

Federal Reserve Banks

Federal Land Banks

Answer

Explanation

Federal Reserve Banks. Debt securities are not issued by Federal Reserve Banks. All of the other entities do issue debt securities.

Questions # 70:

Which of the following municipal securities carries the full faith and credit of the US government for payment of interest and principal if the issuer’s funds are insufficient?

Options:

general obligation bonds issued municipalities

special tax bonds issued by municipalities

revenue bonds issued by municipal port authorities

new housing authority bonds issued by a public housing authority

Answer

Explanation

new housing authority bonds issued by a public housing authority. Only housing bonds are backed by the US government if municipalities are unable to meet the obligations for payment.

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