2025/2026 SERIES 7 PRACTICE
QUESTIONS AND CORRECT ANSWERS |
A+ GRADE VERIFIED ANSWERS
Mrs. Couples has been referred to you by one of your
long-time clients. It seems Mrs. C has an account at
another B/D and would like to make a change. After
speaking with you, she has decided to do an account
transfer. Which of the following most accurately describes
the time requirements upon her soon-to-be former firm to
complete the transfer process?
A) 1 business day in which to validate the transfer
request/instructions; 3 business days in which to effect the
transfer of the account assets
B) 1 business day in which to validate the transfer
request/instructions; 5 business days in which to effect the
transfer of the account assets
C) 3 business days in which to validate the transfer
request/instructions; 4 business days in which to effect the
transfer of the account assets
D) No transfer can be effected until a Clearance Letter has
been received from Homeland Security that there is no
evidence of money laund Correct Answer A) 1 business
day in which to validate the transfer request/instructions; 3
,business days in which to effect the transfer of the account
assets
This is the account transfer rule: 1 day to validate; 3 days
to transfer.
The phase of the business cycle preceding the trough is
best described as:
A) peak
B) contraction
C) recovery
D) expansion Correct Answer B) contraction
The key word in this question is 'preceding.' The phase of
the cycle which comes immediately before hitting the
trough is contraction
You take note of the dividend payout ratios and earnings
growth of a number of listed companies whose stock may
be suitable for several of your customers. The data you've
gleaned from the Continental Consolidated Corporation
(CCC) shows latest reported EPS of $5.00/share with a
dividend distribution of $2.50, while the data from the
Bergen Fairfield Company (BFC) has EPS of $1.15 and no
dividend distribution. Which of the following conclusions
might be drawn from these data, in the absence of any
other information?
A) CCC is defensive; BFC is cyclical
B) CCC is cyclical; BFC is defensive
C) CCC and BFC are growth
,D) CCC is defensive; BFC is growth Correct Answer D)
CCC is defensive; BFC is growth
Analysts may debate this issue, but as a general rule,
defensive industries tend to pay large dividends as a
percentage of their earnings. CCC is paying out 50% of
earnings in the form of dividends. That's a large dividend
payout ratio. CCC would appear to be defensive. On the
other hand, in the growth-oriented industries, paying
dividends is often deferred for years, even decades, until
some level of stability is reached. They tend to plow back
whatever earnings they have into research and
development, and expansion/growth. BFC pays no
dividends, and is most likely a growth company.
The Green Shoe option found in many stock
prospectuses:
A) enables the company to engage in a shelf offering
B) enables the company to sell a limited number of
additional shares beyond the amount initially registered
with SEC, without filing a new registration statement
C) may only be activated when the managing underwriter
is engaged in stabilizing the new issue
D) is also referred to as the underallotment provision
Correct Answer B) enables the company to sell a limited
number of additional shares beyond the amount initially
registered with SEC, without filing a new registration
statement
, A company is permitted to sell up to 15% more shares
than initially registered without having to file a whole new
registration statement. This is the 'overallotment' provision
of SEC rules, also called the 'Green Shoe' option.
Non-recourse loans used to finance direct participation
programs:
A) do not increase investor basis under any circumstances
B) increase investor basis only if the Subscription
Agreement calls for non-recourse loans to be utilized
C) increase investor basis in real estate DPPs only
D) increase investor basis in all DPPs Correct Answer C)
increase investor basis in real estate DPPs only
In DPP/limited partnership securities offerings, reference
is made to the types of borrowing in which the General
Partner may engage on behalf of the partnership. Non-
recourse debt does not put the limited partners at risk, as
the lender has no recourse to the limited liability investors
(your client) in the event the partnership defaults on the
loan. Since the investor is not at risk, this type of lending
does not increase your client's tax basis in the program.
However, for real estate programs, IRS rules provide a
special exception to the 'at risk' rules, resulting in a
situation in which investor basis may be increased by the
use of non-recourse financing in the program. Non-
QUESTIONS AND CORRECT ANSWERS |
A+ GRADE VERIFIED ANSWERS
Mrs. Couples has been referred to you by one of your
long-time clients. It seems Mrs. C has an account at
another B/D and would like to make a change. After
speaking with you, she has decided to do an account
transfer. Which of the following most accurately describes
the time requirements upon her soon-to-be former firm to
complete the transfer process?
A) 1 business day in which to validate the transfer
request/instructions; 3 business days in which to effect the
transfer of the account assets
B) 1 business day in which to validate the transfer
request/instructions; 5 business days in which to effect the
transfer of the account assets
C) 3 business days in which to validate the transfer
request/instructions; 4 business days in which to effect the
transfer of the account assets
D) No transfer can be effected until a Clearance Letter has
been received from Homeland Security that there is no
evidence of money laund Correct Answer A) 1 business
day in which to validate the transfer request/instructions; 3
,business days in which to effect the transfer of the account
assets
This is the account transfer rule: 1 day to validate; 3 days
to transfer.
The phase of the business cycle preceding the trough is
best described as:
A) peak
B) contraction
C) recovery
D) expansion Correct Answer B) contraction
The key word in this question is 'preceding.' The phase of
the cycle which comes immediately before hitting the
trough is contraction
You take note of the dividend payout ratios and earnings
growth of a number of listed companies whose stock may
be suitable for several of your customers. The data you've
gleaned from the Continental Consolidated Corporation
(CCC) shows latest reported EPS of $5.00/share with a
dividend distribution of $2.50, while the data from the
Bergen Fairfield Company (BFC) has EPS of $1.15 and no
dividend distribution. Which of the following conclusions
might be drawn from these data, in the absence of any
other information?
A) CCC is defensive; BFC is cyclical
B) CCC is cyclical; BFC is defensive
C) CCC and BFC are growth
,D) CCC is defensive; BFC is growth Correct Answer D)
CCC is defensive; BFC is growth
Analysts may debate this issue, but as a general rule,
defensive industries tend to pay large dividends as a
percentage of their earnings. CCC is paying out 50% of
earnings in the form of dividends. That's a large dividend
payout ratio. CCC would appear to be defensive. On the
other hand, in the growth-oriented industries, paying
dividends is often deferred for years, even decades, until
some level of stability is reached. They tend to plow back
whatever earnings they have into research and
development, and expansion/growth. BFC pays no
dividends, and is most likely a growth company.
The Green Shoe option found in many stock
prospectuses:
A) enables the company to engage in a shelf offering
B) enables the company to sell a limited number of
additional shares beyond the amount initially registered
with SEC, without filing a new registration statement
C) may only be activated when the managing underwriter
is engaged in stabilizing the new issue
D) is also referred to as the underallotment provision
Correct Answer B) enables the company to sell a limited
number of additional shares beyond the amount initially
registered with SEC, without filing a new registration
statement
, A company is permitted to sell up to 15% more shares
than initially registered without having to file a whole new
registration statement. This is the 'overallotment' provision
of SEC rules, also called the 'Green Shoe' option.
Non-recourse loans used to finance direct participation
programs:
A) do not increase investor basis under any circumstances
B) increase investor basis only if the Subscription
Agreement calls for non-recourse loans to be utilized
C) increase investor basis in real estate DPPs only
D) increase investor basis in all DPPs Correct Answer C)
increase investor basis in real estate DPPs only
In DPP/limited partnership securities offerings, reference
is made to the types of borrowing in which the General
Partner may engage on behalf of the partnership. Non-
recourse debt does not put the limited partners at risk, as
the lender has no recourse to the limited liability investors
(your client) in the event the partnership defaults on the
loan. Since the investor is not at risk, this type of lending
does not increase your client's tax basis in the program.
However, for real estate programs, IRS rules provide a
special exception to the 'at risk' rules, resulting in a
situation in which investor basis may be increased by the
use of non-recourse financing in the program. Non-
