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

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Viewing questions 81-90 out of questions

Questions # 81:

Common stocks for which of the following industries are most likely to decline in value when interest rates rise?

Options:

automobile manufacturers

airlines

stock brokers

public utility companies

Answer

Explanation

public utility companies. Interest rates most affect the companies with the greatest amount of debt. Public utility companies are highly leveraged. Hence, they most likely incur the largest effect of rising interest rates.

Questions # 82:

Which of the following is the least important method of money control exercised by the Federal Reserve?

Options:

reserve requirements

open market operations

discount rate

Regulation T

Answer

Explanation

Regulation T. Because this regulates brokers extending credit to customers, it is important to the securities industry but does not have an extensive effect on the general economy.

Questions # 83:

Which of the following is true about a customer with a frozen account?

Options:

may not trade corporate securities under any circumstances

may make purchases but not sales of corporate securities

must deposit the full purchase cost before an order is executed

must deposit sufficient cash for each transaction no later than the settlement date

Answer

Explanation

must deposit the full purchase cost before an order is executed. A “frozen” account is restricted to full cash payment in advance for any purchase.

Questions # 84:

Under the Investment Company Act of 1940, what is the minimum net worth of a registered investment company?

Options:

$100,000

$50,000

$25,000

$5,000

Answer

Explanation

$100,000. This was a considerable amount of money in 1940.

Questions # 85:

Under which of the following was SIPC established?

Options:

Securities Act of 1933

Securities Exchange Act of 1934

Securities Investor Protection Act of 1970

Securities Exchange Reform Act of 1975

Answer

Explanation

Securities Investor Protection Act of 1970. SIPC was established under this act.

Questions # 86:

Bubba Corporation owes income tax. Which of the following may be tendered at par value for payment of the tax?

Options:

term bond

tax anticipation bill

special tax bond

pre-issue bond

Answer

Explanation

tax anticipation bill. These are specifically designated securities that may be used at face value for payment of corporate taxes.

Questions # 87:

Bubba buys a 5% municipal bond maturing in 15 years that is trading at a market price of 85.

What is the current yield?

Options:

5.00%

5.88%

6.49%

5.10%

Answer

Explanation

5.88%. The current yield is the annual interest divided by the price. The bond will pay $50 of interest per year ($1,000 face amount times 5%). Dividing by the price of $850 equals 5.88%.

Questions # 88:

Which of the following securities has the highest amount of market risk?

Options:

US treasury bills

US treasury certificates

US treasury notes

savings bank deposits

Answer

Explanation

US treasury notes. Savings bank deposits have no risk. The short duration of treasury bills and certificates embodies less market risk than longer-term treasury notes.

Questions # 89:

In comparing the premium cost of a LEAPS option with a premium of a traditional option on the same security and same strike price, which of the following is generally true?

Options:

the premiums will be approximately the same

the LEAPS premium will be higher than the traditional option premium

the premium for the traditional option will be higher than the LEAPS option premium

LEAPS premiums do not consider time value

Answer

Explanation

the LEAPS premium will be higher than the traditional option premium. Because LEAPS have a longer time until expiration than traditional options, the premium should be higher.

Questions # 90:

If federal excise taxes were increased by the government, what would the typical investor do about his securities portfolio?

Options:

sell treasuries and invest in municipal bonds

sell corporate bonds and invest in treasuries

sell municipal bonds and invest in high quality growth stocks

take no action as a result of the tax increase

Answer

Explanation

take no action as a result of the tax increase. Excise taxes normally are not important to the typical investor. They generally have little relative effect on securities prices.

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