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

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Total 400 questions
Question 1

Which of the following best describes depreciation?



Answer : B

deductions from gross income to offset lower value of equipment. Depreciation is the deduction of costs for capital assets as their value declines.


Question 2

An option that permits the holder to exercise the contract only at expiration is referred to as:



Answer : A

European style. These options can only be exercised at the expiration date while American style options can be exercised at any time prior to expiration.


Question 3

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?



Answer : B

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.


Question 4

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?



Answer : B

$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.


Question 5

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. At what must XYZ trade for Bubba to break even?



Answer : A

$54. Bubba's position is a bullish spread. The breakeven is determined by adding the debit amount to the lower strike price. The debit amount is $4 ($7 - $3). Adding that to $50 equals $54.


Question 6

A call option is in the money when the market value of the underlying stock is:



Answer : C

higher than the strike price of the option. The premium paid is not relevant. All that matters are the strike price of the option relative to the market value of the underlying stock.


Question 7

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?



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.


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Total 400 questions