Finra Series-7 Exam Practice Test Instant Access

Question 1

Which of the following persons would consider annual reports of a corporation as the most important factor in making investment decisions?

Aa technical analyst

Ba chartist

Ca follower of the Dow theory

Da fundamental analyst

Answer : D

a fundamental analyst. These analysts are guided by computations about a company's performance using data in annual reports.

Question 2

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?

A$100 loss

B$100 profit

C$200 loss

D$200 profit

Answer : A

$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.

Question 3

Bubba buys one XYZ October 80 put and sells one XYZ October 70 put.

What is his position called?

Acalendar spread

Bmoney spread

Cstraddle

Dcombination

Answer : B

money spread. Since the strike prices are different, but not the expiration date, this is a money spread (sometimes called a ''price spread'' or a ''vertical spread'').

Question 4

In June, Bubba bought 100 shares of XYZ at $35. In November, he bought a listed put in XYZ with a $35 strike price and a July expiration for a premium of $600. In April, Bubba exercises the put option and uses his stock for delivery.

What is his resulting tax consequence?

Aa $600 capital loss

Bneither profit nor loss

Ccannot be determined without knowing the market price of XYZ upon exercise

Dthis is a wash sale and cannot be included in the investor's tax calculations

Answer : A

a $600 loss. The strike price and Bubba's purchase price are the same. He has a $600 loss on the option for the premium he paid.

Question 5

In June, Bubba bought 100 shares of XYZ at $35. In November, he bought a listed put in XYZ with a $35 strike price and a July expiration for a premium of $600.

If Bubba sells the stock at $45 in July, what is his resulting tax liability for that transaction?

Ano liability established until the offsetting option position is closed

Ba $400 gain

Ca $1,000 gain

Da $400 capital loss

Answer : C

a $1,000 gain. There is a $1,000 gain on the stock. The option is a separate capital asset.

Question 6

The price an investor pays for a listed option is called the

Astrike price

Bspread

Cpremium

Dexercise price

Answer : C

premium. That's the term for the option cost.

Question 7

At the time it underlying stock is trading at 48, Bubba buys a listed call option with a $50 strike price for $300. At what minimum price must that stock trade for Bubba to recover his investment (ignoring commission and taxes)?

A$45

B$48

C$51

D$53

Answer : D

$53. The breakeven price on the call is the premium plus the strike price. Since the premium is $3 per share, the breakeven price is $53.

Finra Series-7 General Securities Representative ination (GS) Exam Practice Test