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Series 7 Benchmark Exam Questions & Answers Solved 100% Correct!!
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Series 7 Benchmark Exam Questions & Answers Solved 100% Correct!!
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Name: Score:147 Multiple choice questions
Term 1 of 147
A corporation has $12,000,000 net income after taxes, 5,000,000 common shares outstanding and
$10,000,000 of 6% preferred stock ($100 par). What is the corporation's earnings per share?
the tax rate that applies to his XYZ common stock investment does not apply to his REIT.
Dividends from REITs are taxed as ordinary income, not at a preferred rate, regardless of
the holding period. This is in part because REITs pass through the gains without paying any
corporate income tax. Cash dividends from common stock may receive a preferential rate if
the investment has been held for at least 61 of the 121 days surrounding the ex-dividend
date. These are called qualified cash dividends.
Current assets are reduced
On the declaration date, retained earnings are reduced and current liabilities are increased.
$2.28
Earnings per share is calculated as Net Income / Shares Outstanding. In this question
however, the corporation is also paying 6% dividends on its preferred stock. Therefore, the
question is nudging to use a more accurate calculation of earnings per share to take into
account that the corporation pays dividends. To calculate this company's earnings per share
you would need to use the following: (Net Income - Dividends) / Shares Outstanding.
($12,000,000 - $600,000) / 5,000,000 = $2.28
The rep should examine the suitability of alternative investment vehicles in conjunction with
the consequences of switching annuities.
Annuities are meant as long-term investment vehicles. As a result, investors face significant
charges when switching annuities, including surrender fees and potential tax
consequences. When switching annuities, a rep must strongly consider a client's goals
along with a consideration of potential switching costs.
,Term 2 of 147
Broker-dealer M is serving as a financial advisor to County P. May it serve as an underwriter for
the bonds of County P at this time?
it would be appropriate to convert into the underlying common stock.
To determine if a conversion makes sense, first determine the conversion ratio. Here the
ratio is $100 par / 25 conversion price, which is 4 shares. These 4 shares could be sold for
$23, for a total of $92, which is better than the $90 price of the convertible security itself.
now owns 510 shares with no income tax liability on the 10 new shares.
New shares received as the result of a stock split or stock dividend are not taxable events.
Investors are required to adjust their cost basis on all shares now held as the result of the
split or stock dividend.
No, serving in both roles simultaneously is prohibited by MSRB rules.
MSRB rules prohibit broker-dealers who are serving as financial advisors from participating
in an underwriting of bonds of the same municipality. This is based on the MSRB rule
dealing with conflicts of interest.
industry stability.
Quantitative measures, by definition, are based on numerical values. Industry stability is
opinionated information regarding the state of the industry and does not involve numerical
values. Hence, it is a qualitative measure.
,Term 3 of 147
Amy's father purchased 100 shares of ABC stock ten years ago for $40 per share. Amy's father dies
when the stock is worth $65 per share and gifts it to Amy in his will. If Amy sells the shares a year
later when they are worth $70 per share, her cost basis would be
$300
Explanation:
Net direct debt = Total debt - self-supporting debt - sinking fund accumulations. Total debt
= $3,000,000. There are no sinking fund accumulations or self-supporting debt. Net direct
debt per capita = $3,000,000/10,000 = $300.
$65 per share.
When a person dies and leaves stock to their beneficiaries, the cost basis for their heir is the
market value of the stock at the time of death.
the person must receive written consent from their employer prior to opening such
account.
An associated person of a FINRA member firm must receive prior written approval from
their firm in order to open or maintain a securities account at a firm other than their
employer.
acceptance of the limited partner as a member of the partnership.
The subscription agreement is the form signed by both the limited partner and the general
partner accepting the specific limited partner as a member of the partnership.
, Term 4 of 147
Your client Jim has received a dividend from his real estate investment trust. He asks you if this
dividend is treated the same way as the dividend he receives from his XYZ common stock, which
he has owned for several years. You should tell Jim that
$2.28
Earnings per share is calculated as Net Income / Shares Outstanding. In this question
however, the corporation is also paying 6% dividends on its preferred stock. Therefore, the
question is nudging to use a more accurate calculation of earnings per share to take into
account that the corporation pays dividends. To calculate this company's earnings per share
you would need to use the following: (Net Income - Dividends) / Shares Outstanding.
($12,000,000 - $600,000) / 5,000,000 = $2.28
the tax rate that applies to his XYZ common stock investment does not apply to his REIT.
Dividends from REITs are taxed as ordinary income, not at a preferred rate, regardless of
the holding period. This is in part because REITs pass through the gains without paying any
corporate income tax. Cash dividends from common stock may receive a preferential rate if
the investment has been held for at least 61 of the 121 days surrounding the ex-dividend
date. These are called qualified cash dividends.
this investor will be responsible for ordinary income taxes on all distributions taken during
the year.
Distributions from a qualified retirement plan, such as a 401 (k) plan, are subject to ordinary
income taxes. A qualified retirement account is one that is funded with pre-tax dollars,
effectively making it a tax deduction for that year, up to federal limits. Since no taxes were
paid on these funds at the time of their investment, all distributions from these plans are
fully taxable as ordinary income.
that they may be able to do this penalty free but should verify with their tax adviser.
There are various exemptions available for early withdrawal (prior to age 59 ½) from an IRA.
One such exception is available for excessive unreimbursed medical expenses and
disability expenses without an early withdrawal penalty, but withdrawals will be subject to
ordinary income taxes. Other exceptions include eligible education expenses, and the first-
time purchase of a home.
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