Series 7 Test 6 with Answers

1. If Mr. Jones purchases a bond at $98 and it has a nominal yield of 7.5% and it is held to maturity, the investor would have a yield of:

A) Equal to 7.5%
B) Less than 7.5%
C) Greater than 7.5%
D) Between 7.0% and 7.5%


Correct answer is C: A bond purchased at a discount and held to maturity, would have a yield greater than the coupon rate. The nominal yield is paid based on the par amount and matures at $100.

2. Which of the following show dealer to dealer OTC stock quotes on the NASDAQ?
A) Blue sheets
B) Pink sheets
C) Yellow sheets
D) Red sheets

Correct answer is B: The pink sheets show dealer to dealer over the counter stock quotes on the NASDAQ. The Blue sheets show the trade offering sheets of bond dealers, listing dealers' offerings of municipal bonds for sale all over the country. The yellow sheets show corporate bond quotes. The red sheets do not exist.

3. Why would an investor sell stock short?

A) To hedge against another short sale
B) To make large gains with limited risk
C) Make a profit by the decrease in the price per share of a stock
D) Make a profit by the increase in the price per share of a stock


Correct answer is C: Selling stock short is profitable when the market declines, allowing an investor to purchase the stock at a lower price. It is not done with existing long positions and it carries a high degree of risk with limited profitability.

4. A specialist can handle all of the following orders except:

A) Limit order
B) Stop order
C) Stop limit order
D) Market order – not held

Correct answer is D: A specialist cannot use discretion over the price and time of an order execution and cannot take market – not held orders. Limit, stop, and stop limit orders are placed on the specialist’s books and executed at the appropriate time.

5. Which of the following securities does Regulation T apply to?

I. Corporate stock
II. ADR’s
III. U.S. Treasury notes
IV. Convertible corporate bonds

A) I and II
B) I , II, and III
C) I, II, and IV
D) II, III, and IV

Correct answer is C: Regulation T only applies to non-exempt securities. All U.S. Government securities including Treasuries are exempt. ADR’s, Corporate stock, and Convertible corporate bonds are non-exempt.

6. Which of the following is considered a good delivery for a 700-share purchase?

A) Seventy 7-share certificates
B) Ten 70-share certificates
C) Seven 100-share certificates
D) One 700-share certificates

Correct answer is C: To be considered good delivery, stock certificates must be delivered in 100 certificate multiples or in certificates of less than 100 that add up to 100. Only choice C fits this criteria, seven certificates of 100-share certificates.

7. A bond that is sold below par, matures at par and pays no semi-annual interest payments is:

I. Treasury bill
II. Zero Coupon bond
III. Treasury Note
IV. Municipal bond
A) I only
B) I and II
C) II and III only
D) III and IV

Correct answer is B: Treasury bill’s and Zero Coupon bonds are sold at a deep discount and mature at par. They do not pay semi-annual interest and the bond is redeemed by the issuer at par. Treasury notes and Municipal bonds pay semi-annual interest payments to the bondholder and are redeemed at par at maturity.

8. Which of the following amounts would be covered under SIPC insurance?

A) $300,000 securities + $150,000 cash
B) $400,000 securities + $100,000 cash
C) $550,000 securities + $125,000 cash
D) $450,000 securities + $130,000 cash


Correct answer is B: SIPC covers up to a $500,000 maximum. But, this amount does not cover more than $100,000 in total cash.

9. A bond is trading at $1,100, and has a conversion price of $40. At which price would the stock need to trade to be equal to the current bond price?

A) 25
B) 48
C) 40
D) 44


Correct answer is B: The first step is to convert the bond, you must always use par value. Divide the par value (1000) by the conversion price ($40). This equals the amount of shares that will be created (25). To come up with the “parity price” that the stock must trade at, do one of 2 things: Divide $1100 by 25, which equals 44 or multiply 25 by each answer choice until the bond price is equaled. Answer is 44.

10. If a security became mutilated, which of the following could authenticate the certificate?

I. Clearing Corporation
II. Transfer Agent
III. Issuer
IV. Receiving Broker

A. I and II
B. II and III
C. II and IV
D. I, II, III, and IV

Correct answer is B: The certificate can only be authenticated by the transfer agent and the issuer. They are the only ones who can validate the owner and the legitimacy of the security. The receiving broker and the clearing corporation do not have this capacity.

Series 7 NASD Stockbroker Training