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Series 7 Exam Questions And 100% Correct Answers
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Series 7 Exam Questions And 100% Correct AnswersA 58-year-old investor has a single premium deferred variable annuity that currently
values at $500,000. The original investment was $150,000 and the contract provides for
a death benefit. If this investor wanted to exchange this policy for one issued by another
insurance company,
A)
the investor would become subject to ordinary income taxes on $350,000.
B)
the tax-free exchange privilege extends only if the exchange is with or within the same
insurance company.
C)
the investor would be liable for ordinary income taxes plus the 10% penalty on $350,000.
D)
The use of a 1035 exchange would prevent any current taxation. -ANSWER D) The use of
a 1035 exchange would prevent any current taxation. Explanation
Section 1035 of the Internal Revenue Code allows exchanging an annuity for another
annuity, either from the same or a different company with continuation of tax deferral on
earnings. An insurance policy may be exchanged for an annuity, but an annuity may not
be exchanged for an insurance policy.
The correct statement about a variable annuity made by a registered representative to a
customer would be
A variable annuity guarantees an earnings rate of return.
A variable annuity does not guarantee an earnings rate of return.
A variable annuity guarantees payments for life.
A variable annuity does not guarantee payments for life. - ANSWER A)
II and III Explanation
,A variable annuity does not guarantee an earnings rate because earnings will depend
on performance of the separate account. However, it does guarantee payments for life
(mortality).
All of the following statements about variable annuities are true except
A)
such an annuity is designed to combat inflation risk.
B)
the number of annuity units becomes fixed when the contract is annuitized.
C)
the rate of return is determined by the underlying portfolio's value.
D)
a minimum rate of return is guaranteed. - ANSWER D)
a minimum rate of return is guaranteed
The return on variable annuity can never be guaranteed; it is a resultant of the
underlying portfolio value. Inflation risk can be fought with this kind of variable annuity.
The number of annuity units becomes fixed at the time of annuitisation of the contract; it
is the value of each unit that fluctuates.
Your client is a woman in her early 30s who has just come into a modest inheritance
from a relative. One of the client's goals that she wants to achieve with retirement
income is tax-deferred growth. Which of the following investments would you say she
should invest in?
A)
Tax-free municipal bonds
B)
A variable annuity
C)
Corporate debt securities
, D)
Growth mutual funds - ANSWER B)
A variable annuity
Explanation
Variable annuities are tax-deferred and, thus, very appropriate for supplemental
retirement income. They should be funded with available cash and not liquidated from
other investments. None of the other investments listed here are tax-deferred.
A joint and last survivor annuity is a payout option whereby
A)
payments continue until the death of the primary owner.
B)
two people are covered and payments continue until the second death.
C)
payments continue for a specified period of time.
D)
payments continue to age 70½. - ANSWER B)
two lives are covered and payments continue to the second death.
EX
Under a joint and last survivor option, the annuity payment is paid jointly to both parties
during the lifetime of both. Upon the death of the first, the annuity payment is made to
the survivor. Upon the death of the second, all payments stop.
FINRA Rule 2330 addresses - ANSWER The product that the FINRA rule addresses is
deferred variable annuities. It reaches the sale or exchange of this particular product.
A separate account will invest in several various securities. The separate account is not
likely to invest in
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