S7 Exam 1 QUESTIONS WITH ANSWERS
A customer's niece has third party authorization and has
recently been appointed to be the customer's trusted
contact person. Although the customer seemed
disoriented when she appointed her niece, the paperwork
was still signed. The niece begins making cash
withdrawals and changing investments in the account.
When the registered representative contacts the
customer to confirm the transactions, the customer
sounds surprised; however, she states, "since it's my
niece, just go along with it." What action should the
registered representative take? - CORRECT ANSWERS
✔✔Of the choices listed, the best course of action is for
the RR to contact a principal to discuss the situation. If an
RR suspects financial exploitation, the firm can place a
temporary hold, but that action should not be taken until
the firm conducts an investigation. FINRA encourages
firms to attempt to resolve a matter with a customer
before placing a temporary hold. Prior to following up with
the customer or following the niece's instructions, the RR
should discuss this situation with a principal and the
firm's compliance department. If a firm places a
temporary hold on disbursements of funds or securities
from the account, it's required to notify the trusted
contact person, unless the firm believes that the trusted
contact person is engaged (or will engage) in financial
exploitation of the specified adult.
,While saving for her retirement, a variable annuity owner
investing $1,000 per month will buy a: - CORRECT
ANSWERS ✔✔When investors purchase a variable
annuity contract, they are purchasing accumulation units.
Once a contract has been annuitized, distributions are
made by liquidating annuity units. Since the value of the
subaccounts will fluctuate, a client investing $1,000 per
month will purchase a different number of accumulation
units with each purchase.
Which of the following is NOT TRUE of private label
CMOs? - CORRECT ANSWERS ✔✔Private label
mortgage-backed securities are issued by financial
institutions such as commercial banks, investment banks,
and home builders and they contain some agency
securities. However, a private label MBS typically
contains other types of mortgage loans that are not
agency securities. A private label MBS is not an obligation
of the U.S. government or any GSE and its credit rating is
assigned by an independent credit agency. A private label
MBS has higher credit risk and is generally not given a
AAA rating.
A client has established the following position:
Long 1 DEF May 50 call at 2Short 1 DEF May 40 call at 6
, In which of the following situations will the client have the
maximum potential profit? - CORRECT ANSWERS
✔✔This position is referred to as a credit call spread. It's a
credit because the client received more for the short call
with the lower strike price than what was paid for the call
with the higher strike price. If both calls expire
unexercised, the client will keep the net premium (the
maximum gain). This will occur If DEF remains at or below
$40 per share, since neither call will be exercised. If the
stock price is trading below 44 (the breakeven point), the
client may have a profit, but the maximum profit is
realized if both options expired unexercised. (17058)
Windsor Corporation has 7,000,000 shares of common
stock ($.01 par value) authorized, of which 5,000,000
shares have been issued. There are 500,000 shares of
treasury stock. The current market price is $20. The
market capitalization of Windsor Corporation's common
stock is: - CORRECT ANSWERS ✔✔Market capitalization
is determined by multiplying the number of outstanding
shares by the current market price per share.
Outstanding shares include those held by institutions,
retail investors, and restricted shares held by insiders, but
does not include treasury stock (shares repurchased by
the company). Therefore, there are 4,500,000 shares
outstanding at a $20.00 market price for a total of
$90,000,000.
A customer's niece has third party authorization and has
recently been appointed to be the customer's trusted
contact person. Although the customer seemed
disoriented when she appointed her niece, the paperwork
was still signed. The niece begins making cash
withdrawals and changing investments in the account.
When the registered representative contacts the
customer to confirm the transactions, the customer
sounds surprised; however, she states, "since it's my
niece, just go along with it." What action should the
registered representative take? - CORRECT ANSWERS
✔✔Of the choices listed, the best course of action is for
the RR to contact a principal to discuss the situation. If an
RR suspects financial exploitation, the firm can place a
temporary hold, but that action should not be taken until
the firm conducts an investigation. FINRA encourages
firms to attempt to resolve a matter with a customer
before placing a temporary hold. Prior to following up with
the customer or following the niece's instructions, the RR
should discuss this situation with a principal and the
firm's compliance department. If a firm places a
temporary hold on disbursements of funds or securities
from the account, it's required to notify the trusted
contact person, unless the firm believes that the trusted
contact person is engaged (or will engage) in financial
exploitation of the specified adult.
,While saving for her retirement, a variable annuity owner
investing $1,000 per month will buy a: - CORRECT
ANSWERS ✔✔When investors purchase a variable
annuity contract, they are purchasing accumulation units.
Once a contract has been annuitized, distributions are
made by liquidating annuity units. Since the value of the
subaccounts will fluctuate, a client investing $1,000 per
month will purchase a different number of accumulation
units with each purchase.
Which of the following is NOT TRUE of private label
CMOs? - CORRECT ANSWERS ✔✔Private label
mortgage-backed securities are issued by financial
institutions such as commercial banks, investment banks,
and home builders and they contain some agency
securities. However, a private label MBS typically
contains other types of mortgage loans that are not
agency securities. A private label MBS is not an obligation
of the U.S. government or any GSE and its credit rating is
assigned by an independent credit agency. A private label
MBS has higher credit risk and is generally not given a
AAA rating.
A client has established the following position:
Long 1 DEF May 50 call at 2Short 1 DEF May 40 call at 6
, In which of the following situations will the client have the
maximum potential profit? - CORRECT ANSWERS
✔✔This position is referred to as a credit call spread. It's a
credit because the client received more for the short call
with the lower strike price than what was paid for the call
with the higher strike price. If both calls expire
unexercised, the client will keep the net premium (the
maximum gain). This will occur If DEF remains at or below
$40 per share, since neither call will be exercised. If the
stock price is trading below 44 (the breakeven point), the
client may have a profit, but the maximum profit is
realized if both options expired unexercised. (17058)
Windsor Corporation has 7,000,000 shares of common
stock ($.01 par value) authorized, of which 5,000,000
shares have been issued. There are 500,000 shares of
treasury stock. The current market price is $20. The
market capitalization of Windsor Corporation's common
stock is: - CORRECT ANSWERS ✔✔Market capitalization
is determined by multiplying the number of outstanding
shares by the current market price per share.
Outstanding shares include those held by institutions,
retail investors, and restricted shares held by insiders, but
does not include treasury stock (shares repurchased by
the company). Therefore, there are 4,500,000 shares
outstanding at a $20.00 market price for a total of
$90,000,000.
