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

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Viewing questions 71-80 out of questions

Questions # 71:

Bubba has not existing positions in his account and writes 1 XYZ July 60 put and 1 XYZ July 60 call.

What is this position called?

Options:

short combination

long combination

long straddle

short straddle

Answer

Explanation

short straddle. A straddle is a put and call on the same stock with the same strike price and expiration date.

Questions # 72:

Bubba’s margin account has $2,000 of SMA. If he buys $10,000 of new securities, how much additional cash must he deposit assuming a Reg T requirement of 50%?

Options:

$3,000

$4,800

$5,000

$6,000

Answer

Explanation

$3,000. The purchase requires $5,000 ($10,000 x 50%). Since the existing SMA is $2,000 Bubba only needs to deposit the remaining $3,000.

Questions # 73:

Bubba buys one XYZ September 50 call at $7 and sells one XYZ September 60 call at $3. At that time, XYZ stock is at $55. Bubba has no other stock positions.

What is Bubba’s maximum possible profit?

Options:

$500

$600

$1,000

unlimited

Answer

Explanation

$600. The maximum profit is the difference between strike prices less the debit amount. The debit amount is $4 ($7 - $3). The difference between strike prices is $10 ($60 - $50). Multiply the $6 difference by 100, which is the number of shares on one option.

Questions # 74:

Which of the following would not be subject to the holding period restrictions under Rule 144?

Options:

restricted stock acquired via investment letter

restricted stock acquired via stock options plan

restricted stock acquired via private placement

restricted stock acquired via open market purchase

Answer

Explanation

restricted stock acquired via open market purchase. The two-year holding period does not apply when the security is acquired in the open market. However, if the security is owned by a control person, the other provisions of Rule 144 do apply.

Questions # 75:

In what broad category of municipal bonds are “limited tax” bonds placed?

Options:

general obligation

special tax

revenue

new housing authority

Answer

Explanation

general obligation. A limited tax bond is generally classified as general obligation.

Questions # 76:

Bubba purchases 100 shares of XYZ at 78 and, on the same day, writes 1 XYZ October 80 call for a premium of 4. If the option expires unexercised, what is Bubba’s profit on the 100 shares of stock?

Options:

$200

$400

$600

cannot be determined

Answer

Explanation

cannot be determined. Since Bubba has not yet sold the stock, a profit cannot be determined on the stock. He has a $400 profit on the option.

Questions # 77:

Bubba buys one XYZ June 40 call for $1,000 and sells one XYZ March 40 call for $600. Subsequently, the June call is closed for $1,200 and the March call for $900.

What is Bubba’s net result?

Options:

$100 loss

$100 profit

$200 loss

$200 profit

Answer

Explanation

$100 profit. The long position in the June call is a $200 profit ($1,200 - $1,000). The short position in the March call is a $300 loss ($900 - $300). Combining the gain and loss results in a $100 loss.

Questions # 78:

Which of the following is not true about US treasury bills?

Options:

they are issued at a discount

they are money market instruments

they are issued in denominations of $1,000 to $1,000,000

they are general obligations of the US government

Answer

Explanation

they are issued in denominations of $1,000 to $1,000,000. Remember, the question asks what is “not” true. The smallest denomination for a US treasury bill is $10,000.

Questions # 79:

The initial Federal Reserve Bank margin requirement is set at 60% and Bubba purchases 100 shares of XYZ at $100 per share. He deposits $6,000 of the $10,000 purchase price in his account.

If XYZ increases in value to $150 per share, how much excess equity would Bubba have in his account?

Options:

$1,000

$1,500

$2,000

$3,000

Answer

Explanation

$2,000. Bubba started with $6,000 of equity and a debit balance of $4,000. The market value of his XYZ stock increased by $5,000 ($15,000 - $10,000). Therefore, his equity increased to $11,000. Since Bubba only needs 60% equity, his Reg T requirement is $9,000 ($15,000 x 60%). His equity exceeds the requirement by $2,000.

Questions # 80:

Under Regulation T of the Federal Reserve, when may a broker overlook an amount due in a customer’s account?