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STC Series 7 Final #1 correctly answered to pass
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STC Series 7 Final #1 correctly answered to pass
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STC Series 7 Final #1Which of the following would be considered the most volatile mutual fund?
A. A balanced fund
B. A municipal bond fund
C. An emerging markets fund
D. A U.S. government securities fund - correct answer ✔✔C. An emerging markets fund
Emerging markets funds invest in securities issued by countries with unsure economic, political, and
social climates. This leads to significant volatility in share prices.
Compared to selling short, buying a put option:
A. Requires a larger capital commitment
B. Has a larger loss potential
C. Does not require the client to arrange to borrow the stock
D. Requires a margin account - correct answer ✔✔C. Does not require the client to arrange to borrow
the stock
Short selling requires the deposit of margin, whereas the premium on a put is usually substantially less
than the Regulation T margin requirement. On a short sale, the seller's risk is unlimited, whereas on a
put purchase, the risk is limited to the premium. Although a short sale may be effected only if the stock
can be borrowed under Regulation SHO, a put may be purchased at any time. Puts can be purchased in a
cash account, while selling short requires a margin account.
The tranche with the longest maturity and, therefore, the last to receive interest and principal payments
within a CMO, is known as the:
A. PAC tranche
B. Z-tranche
C. Supersinker
D. Companion tranche - correct answer ✔✔B. Z-tranche
The separate classes of a CMO are known as tranches. The longest maturity is frequently called the Z-
tranche or the accrual bond, and does not receive interest or principal payments until the shorter
maturing tranches have been retired.
,Which of the following is included on an income statement?
A. Current liabilities
B. Stockholders' equity
C. Current assets
D. Gross revenues - correct answer ✔✔D. Gross revenues
Gross revenues (also referred to as gross sales) is found on an income statement. On the other hand,
current assets, current liabilities, and stockholders' equity are all found on a balance sheet
What type of bond would MOST likely be secured by an excise tax, cigarette tax, or gasoline tax?
A. GO bond
B. Special tax bond
C. Special assessment bond
D. Double-barreled bond - correct answer ✔✔B. Special tax bond
A special tax bond is a type of revenue bond and is usually financed by a tax on certain items such as
cigarettes, liquor, or gasoline (excise taxes).
A customer sells 500 shares of stock to a broker-dealer, a registered market maker in this stock. The
broker-dealer acted in a(n):
A. Principal capacity and charged the customer a commission
B. Agency capacity and charged the customer a markup
C. Principal capacity and charged the customer a markdown
D. Agency capacity and charged the customer a commission - correct answer ✔✔C. Principal capacity
and charged the customer a markdown
A broker-dealer that is always willing to buy and/or sell shares of stock is considered a market maker. A
market maker will normally act in a principal capacity and charge the customer a markdown when
buying stock from a customer and a markup when selling stock to a customer. When acting in an agency
capacity, the broker-dealer will normally charge the customer a commission.
An employee of a broker-dealer owns shares of XYZ in his personal account. His spouse is a director of
XYZ Corporation. If XYZ is engaged in a secondary offering of stock, can shares be purchased in a joint
account that's owned by the employee and his spouse?
,A. No, unless there are unsold portions of the secondary offering.
B. Yes, but only in the personal account of the spouse who's not a director of the issuer.
C. No, because both are considered associated persons of the firm.
D. Yes, because secondary offerings are permitted to be sold to restricted persons. - correct answer
✔✔D. Yes, because secondary offerings are permitted to be sold to restricted persons.
Only the sale of initial public offerings (IPOs) of equity securities are prohibited to restricted persons.
Since secondary offerings are not considered new issues, they can be sold to associated persons of
broker-dealers. Since the spouse is a director of the issuer, the sale would be permitted even if it was an
IPO.
A research analyst at a broker-dealer is preparing a research report recommending ABC common stock.
Which of the following situations need not be disclosed?
A. ABC Corp is an investment banking client of the broker-dealer
B. The broker-dealer has a 1% or greater beneficial ownership in ABC nonconvertible bonds
C. The broker-dealer has a 1% or greater beneficial ownership in ABC common stock
D. The broker-dealer makes a market in ABC common stock - correct answer ✔✔B. The broker-dealer
has a 1% or greater beneficial ownership in ABC nonconvertible bonds
The broker-dealer is required to make certain disclosures in its research reports, such as whether the
firm has an investment banking relationship or makes a market in the common stock of ABC. It must also
disclose its ownership in a subject security if the ownership is equal to or greater than 1% beneficial
ownership in common equity. Since nonconvertible debt is not considered common equity, disclosure is
not required.
A fundamental analyst is NOT interested in which TWO of the following metrics?
I. Short interest
II. The P/E ratio
III. Trading volume
IV. EPS
A. II and IV
B. II and III
C. I and IV
D. I and III - correct answer ✔✔D. I and III
, Short interest and trading volume are technical indicators. EPS and the P/E ratio are fundamental
indicators.
A firm is not permitted to accept an exercise notice from a customer for a listed equity option after:
A. 3:30 p.m. Eastern Time on the expiration date of the option
B. 5:30 p.m. Eastern Time on the expiration date of the option
C. 4:30 p.m. Eastern Time on the expiration date of the option
D. 2:30 p.m. Eastern Time on the expiration date of the option - correct answer ✔✔B. 5:30 p.m. Eastern
Time on the expiration date of the option
According to SRO rules a firm is permitted to accept from a customer, an exercise notice for a listed
equity option no later than 5:30 p.m. Eastern Time on the expiration date of the option (the third Friday
of the expiration month). Brokerage firms, however, may set an earlier deadline for notification of an
option holder's intention to exercise.
Of the following broad-based indexes, the one with the narrowest measure of the market is the:
A. Dow Jones Industrial Average
B. The Wilshire Associates Equity Index
C. Standard and Poor's 500 Index
D. The New York Stock Exchange Composite Index - correct answer ✔✔A. Dow Jones Industrial Average
The Dow Jones Industrial Average contains only 30 stocks. The Wilshire Index represents the dollar value
of all the stocks and is considered the broadest of all indexes and averages. The S&P 500 Index contains
500 stocks, while the NYSE Composite Index consists of all of the common stocks that are listed on the
NYSE.
Which of the following statements is TRUE concerning electronic communication networks (ECNs)?
A. They can be used by clients who don't want to use a broker-dealer.
B. They can be used only by retail investors.
C. They can be used only by institutional investors.
D. They can be used by investors who want to trade anonymously. - correct answer ✔✔D. They can be
used by investors who want to trade anonymously.
Electronic communication networks (ECNs) are securities trading systems that are designed to
anonymously match buyers with sellers. These systems can be used by both institutional and retail
investors. One of the benefits of their use is immediate automatic execution if a matching buy or sell
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