McGraw-Hill's 500 Series 7 Exam Questions to Know by Test Day
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McGraw-Hill's 500 Series 7 Exam Questions to Know by Test Day
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Overview
Sharpen your subject knowledge and build yourtest-taking confidence with:
- 500 Series 7 exam questions with answers
- Clear solutions in the answer key for every problem
- A format parallel to that of the Series 7 exam
Product Details
| ISBN-13: | 9780071789783 |
|---|---|
| Publisher: | McGraw Hill LLC |
| Publication date: | 12/19/2012 |
| Pages: | 192 |
| Sales rank: | 646,276 |
| Product dimensions: | 5.90(w) x 8.90(h) x 0.30(d) |
About the Author
Read an Excerpt
McGraw-Hill's 500 Series 7 Exam Questions to Know by Test Day
By Esmé Faerber
McGraw-Hill Companies, Inc.
Copyright © 2013 Esmé FaerberAll right reserved.
ISBN: 978-0-07-178978-3
Chapter One
Common Stock and Preferred Stock
1. The book value of common stock is the same as
(A) par value
(B) liquidation value
(C) net worth
(D) net tangible asset value per share
2. At the company's shareholder meeting, five positions are up for election to the board of directors. Jason Smart owns 200 shares, and voting is on a cumulative basis. Which of the following are acceptable ways for Jason to vote?
I. 200 votes for each of the five candidates
II. 1,000 votes for one candidate
III. 600 votes for one candidate and 100 votes for each of the other four candidates
IV. 1,000 votes for each candidate
(A) I, II, and IV
(B) I only
(C) I, III, and IV
(D) I, II, and III
3. ABC Corporation issues new shares to its existing shareholders through a rights offering. The stock is offered to its existing shareholders at $20 per share and eight rights. The market price of ABC stock is $26 per share. What is the value of a cum-right?
(A) $0.67
(B) $0.75
(C) $1.33
(D) $1.50
4. Four directors are to be elected under the statutory method. If a shareholder owns 100 shares, how would he or she cast these votes?
I. 400 votes for one director
II. 100 votes for each director
III. 300 votes for one director and 100 votes for one director
(A) I, II, and III
(B) I and III
(C) II only
(D) I and II
5. WAZ Corporation's stock trades ex-dividend on Tuesday, April 8. If a shareholder would like to receive the dividend, on which day should the investor purchase the stock?
(A) Friday, April 4
(B) Thursday, April 3
(C) Wednesday, April 2
(D) Monday, April 7
6. Treasury stock is considered to be
(A) authorized and issued shares
(B) issued and outstanding shares
(C) authorized and unissued shares
(D) unissued and outstanding shares
7. The ex-dividend date for trading common stock is
(A) two business days after the record date
(B) two business days before the record date
(C) one business day before the record date
(D) one business day after the record date
8. Which of the following statements about a limit order to sell stock is true?
(A) If the market price of the stock trades at or above the limit price, the order will be executed.
(B) If the market price of the stock trades below the limit price, the order will be executed.
(C) Once the limit order is triggered, the order could be filled below the limit price.
(D) None of the above
9. Which of the following ratios indicates high leverage for a corporation?
(A) High working capital
(B) High current ratio
(C) High gross margin
(D) High debt-to-equity ratio
10. XYZ Corporation has 5,000,000 common shares and 1,000,000 shares of 6 percent $100 par value cumulative preferred stock. During the recession of the past two years, XYZ suspended all dividend payments. This year XYZ returned to profitability, and the board of directors declared a $1 per share common stock dividend to be paid at the end of the year. How much would XYZ have to pay in dividends this year?
(A) $5,000,000
(B) $11,000,000
(C) $17,000,000
(D) $23,000,000
11. A technical analyst is most concerned with which of the following?
I. EPS
II. P/E ratio
III. Resistance and support levels
IV. Market timing
(A) I, II, and IV
(B) IV only
(C) III and IV
(D) III only
12. A fundamental analyst is least concerned with
(A) short interest ratio
(B) earnings per share
(C) industry analysis
(D) cash flow analysis
13. A stock has a beta coefficient of 1.10. What does this mean?
(A) This stock is less volatile than the market.
(B) If the market goes up, this stock is expected to decline in price.
(C) If the market goes up, this stock should increase in price.
(D) If the market goes down, this stock should decline by less than the percentage decline of the market.
14. Which of the following information cannot be determined from the balance sheet alone?
(A) Current ratio
(B) Debt-to-equity ratio
(C) Return on equity
(D) Retained earnings
Questions 15 and 16 are based on the following information:
The ticker tape for XYZ Corporation's stock shows the following: 36.10, 36.20, 36.50, 36.00, 36.10, 36.20
An investor initiates a sell stop order for 100 shares of XYZ at 36.00.
15. At what price was the order triggered?
(A) 36.10
(B) 36.20
(C) 36.50
(D) 36.00
16. At what price was the order executed?
(A) 36.10
(B) 36.20
(C) 36.50
(D) 36.00
17. A specialist holds which type of orders in his or her book?
I. Stop orders
II. Limit orders
III. Market orders
IV. Not-held orders
(A) I and II
(B) II and III
(C) I, II, and III
(D) II and IV
18. Which type of investment is most suitable for an investor to invest in for an infant child's future college education?
(A) Junk bonds
(B) Treasury bonds
(C) Blue-chip stocks
(D) Speculative stocks
19. XYZ Corporation issues new shares but decides not to sell them all. Under a shelf registration, XYZ can sell the shares held back within the next ______________ without having to reregister them.
(A) two years
(B) one year
(C) 270 days
(D) None of the above
20. A trade involving two institutions that do not use the services of a broker-dealer takes place in the
(A) first market
(B) second market
(C) third market
(D) fourth market
21. Stocks with high P/E ratios that do NOT pay or pay low dividends would be typical of
(A) value stocks
(B) blue-chip stocks
(C) growth stocks
(D) utility company stocks
22. A 5.5 percent preferred stock with a $100 par value is trading at $80 per share and is callable at $101 per share. What is its nominal yield?
(A) 6.88 percent
(B) 5.45 percent
(C) 5.5 percent
(D) None of the above
23. An investor owns 2,000 shares of XYZ Corporation and decides to sell 1,000 shares. Which statement about the sale is true?
(A) The investor can specify which shares are to be sold in order to minimize capital gains.
(B) The investor must use the LIFO method to identify which shares are to be sold.
(C) The investor must use the FIFO method to identify which shares are to be sold.
(D) The investor does not have a choice in determining which of the shares are to be sold.
24. The pink sheets provide
I. quotes for stocks listed on NASDAQ
II. quotes for exchange-listed stocks
III. wholesale quotes for OTC stocks that are thinly traded or too small to be listed on NASDAQ
IV. the names of the market makers for OTC stocks
(A) I and IV
(B) II and IV
(C) III and IV
(D) I and III
Questions 25 and 26 are based on the following information:
Balance Sheet information for XYZ Corporation as of December 31, 20XX, and Income Statement information for the year ended December 31, 20XX
Cash $5,000,000 Depreciation $500,000 Interest expense $100,000 Operating profit (EBIT) $4,000,000 Taxation 40% Preferred dividends 250,000 Common stock dividends 200,000 Number of shares outstanding 1,000,000 Market price of the common stock $15
25. What is the price/earnings ratio?
(A) 7.94
(B) 7.18
(C) 0.14
(D) 6.41
26. What is the cash flow per share?
(A) $5.00
(B) $4.50
(C) $2.84
(D) $2.09
27. If an investor wants a specified price or better when buying and selling stocks, which types of orders should he or she place?
(A) Buy stops and sell stops
(B) Buy limits and sell limits
(C) Buy stops and sell limits
(D) Buy limits and sell stops
28. XYZ Corporation has a 6 percent participating preferred stock issue, along with a common stock issue. Which of the following statements is true?
(A) Participating preferred shareholders receive a minimum dividend payment of 6 percent.
(B) Participating preferred shareholders receive an average dividend payment of 6 percent.
(C) Participating preferred shareholders receive only 6 percent in dividends.
(D) Participating preferred shareholders receive a maximum dividend payment of 6 percent.
29. An investor bought 1,000 shares of XZ Corporation's common stock at $35 per share and paid a total commission of $20 for the trade. If XZ issues a 10 percent stock dividend, which of the following statements is true after the stock dividend?
(A) The investor has 1,100 shares at a cost basis of $35.02 per share.
(B) The investor has 1,000 shares at a cost basis of $35.02 per share.
(C) The investor has 1,100 shares at a cost basis of $31.84 per share.
(D) The investor has 1,000 shares at a cost basis of $31.84 per share.
30. A company whose stock trades at $40 per share and has earnings per share of $5 decides on a 2-for-1 stock split. After the stock split, which of the following statements is true?
I. The earnings per share is $5.
II. The earnings per share is $2.50.
III. The price/earnings ratio is 8.
IV. The price/earnings ratio is 4.
(A) I and III
(B) II and IV
(C) I and IV
(D) II and III
31. Which of the following statements about ADRs is true?
(A) They assist foreign investors in investing in U.S. stocks.
(B) They assist U.S. investors in investing in foreign stocks.
(C) They assist U.S. investors in investing in U.S. stocks.
(D) They assist foreign investors in investing in foreign stocks.
32. Which of the following actions does NOT decrease working capital?
(A) Paying off long-term bonds three years before the maturity date
(B) Declaring a dividend
(C) Paying a dividend
(D) Buying machinery for cash
33. Which of the following statements about an advance-decline line used by technical analysts best portrays its use?
(A) Shows the volatility of the market
(B) Shows the integrity of the market
(C) Shows the volume of stocks traded in the market
(D) Shows the direction of the market
Questions 34 and 35 are based on the following information:
A computer shows the following information for XYZZ, a NASDAQ-listed stock:
L 6.12 O 5.85 C 6.10 B 6 H 6.15 NC +.20 A 6.15 L 5.85 V 320
34. What is the quote for XYZZ stock?
(A) 6.10 - 6.12
(B) 5.85 - 6.15
(C) 6 - 6.10
(D) 6 - 6.15
35. If an investor placed a limit order to sell XYZZ at 6.12 when the stock traded at 6.15, why was the order NOT executed?
(A) The stock never traded above 6.
(B) The last trade was 5.85.
(C) The stock traded at 6.15 on the previous day.
(D) The trade at 6.15 was by another market maker.
36. What determines the yield on common stock?
I. Earnings
II. Dividends paid
III. Number of shares outstanding
IV. Market price of the stock
(A) I and III
(B) II and IV
(C) I, II, and IV
(D) III and IV
37. If a company sells newly issued $5 million, 6 percent debenture bonds maturing in 2040, which of the following balance sheet accounts will increase?
I. Current liabilities
II. Total liabilities
III. Current assets
IV. Net worth
(A) I and III
(B) I, II, and III
(C) II, III, and IV
(D) II and III
38. The support level is
(A) the lower level of a stock's trading range
(B) the upper level of a stock's trading range
(C) the middle level of a stock's trading range
(D) None of the above
39. A stock has a P/E ratio of 15 when the market price is $60 per share. What is the company's EPS?
(A) $0.25
(B) $4.00
(C) $1.00
(D) Cannot be determined from the information provided
40. An investor owns 1,000 shares of XYZ Corporation when the corporation announces a 1-for-4 reverse stock split. Before the stock split, XYZ's stock was trading at $1.50 per share. After the stock split, what ownership position will the investor have?
(A) 4,000 shares at $0.37 per share
(B) 1,000 shares at $6.00 per share
(C) 250 shares at $1.50 per share
(D) 250 shares at $6.00 per share
41. Which of the following trades of 770 shares is NOT good delivery for a trade?
(A) One certificate of 700 shares and one certificate of 70 shares
(B) Two certificates of 300 shares, one certificate of 100 shares, and one certificate of 70 shares
(C) Nine certificates of 70 shares, one certificate of 50 shares, and one certificate of 90 shares
(D) Three certificates of 200 shares, one certificate of 100 shares, and one certificate of 70 shares
42. A corporation has 6 percent participating preferred stock. What does the 6 percent mean?
(A) Maximum dividend payment
(B) Minimum dividend payment
(C) Actual dividend payment
(D) None of the above
43. Shareholders of a corporation must approve which of the following?
I. Giving shareholders a stock dividend
II. Giving shareholders a cash dividend
III. Splitting the stock
IV. Reverse-splitting the stock
(A) I and II only
(B) III and IV only
(C) All of the above
(D) None of the above
44. One of your clients is interested in equity investments that pay dividends. Which of the following investments would you NOT recommend?
(A) XYZ common stock
(B) XYZ preferred stock
(C) XYZ convertible preferred stock
(D) XYZ warrants
Chapter Two
Bonds
45. An investor buys fifty 6 percent coupon bonds at $101, maturing in 20 years. The bonds are currently trading at $102. How much semiannual interest will the investor receive?
(A) $3,030
(B) $1,530
(C) $3,000
(D) $1,500
46. An investor purchases a bond with a coupon yield of 4 percent maturing in six years. If the yield-to-maturity on the bond is 4.9 percent, how much did the investor pay for the bond?
(A) Above $1,000
(B) Below $1,000
(C) $1,000
(D) Cannot determine the price from the information presented
47. An investor purchased a 4 percent coupon bond, maturing in 10 years, at 85. The investor holds the bond for five years and sells it at 90. What is the investor's gain or loss?
(A) $50 gain
(B) $500 gain
(C) $100 loss
(D) $25 loss
48. Which of the following is NOT a money market security?
(A) Commercial paper
(B) Treasury bills
(C) Treasury notes
(D) CDs
49. Determine the tax consequences of the following transaction: An investor purchases five convertible bonds at 93 and a week later converts the bonds into common stock. The conversion price is $40, and the investor sells the shares at $38 per share.
(A) $20 capital gain
(B) $20 capital loss
(C) $100 capital gain
(D) $100 capital loss
50. An investor purchases a 4.5 percent bond at 90 that matures in 10 years. What is the tax liability of this bond?
(A) $45
(B) $35
(C) $55
(D) $145
51. Which of the following is NOT true with regard to a bond that is selling at a premium?
(A) The nominal yield is greater than the current yield.
(B) The market price of the bond is greater than the face value of the bond.
(C) The yield-to-maturity is greater than the current yield.
(D) Market rates of interest more than likely increased after this bond is issued.
Questions 52 and 53 are based on the following information:
A company issues 5 percent convertible bonds maturing in eight years. The bonds were sold at 80 per bond.
52. An investor purchased five of these bonds. What is the investor's current yield?
(A) 5 percent
(B) 6.25 percent
(C) 7.25 percent
(D) None of the above
53. In decreasing order, the yields are
(A) yield-to-maturity, current, and nominal
(B) yield-to-maturity, nominal, and current
(C) nominal, current, and yield-to-maturity
(D) current, nominal, and yield-to-maturity
54. The balance sheet of XYZ Corporation shows $1,000,000 of callable bonds with a conversion price of $33 and $1 par value common stock of $2,000,000. If net income is $2,300,000, then what is the earnings per share?
(A) $2.00
(B) $1.15
(C) $1.00
(D) $0.87
55. An investor buys a Treasury bond on Tuesday, June 5. How many days of accrued interest must the investor pay if the Treasury bond last paid interest on March 15?
(A) 80 days
(B) 81 days
(C) 82 days
(D) 83 days
56. Which statements are true about Treasury STRIP securities?
I. Investors pay taxes on interest earned at maturity.
II. Investors pay taxes on annual interest earned.
III. Investors receive semiannual interest payments.
IV. Investors are paid principal and interest at maturity.
(A) I and II
(B) I and III
(C) II and IV
(D) I and IV
57. If interest rates are expected to increase over the next decade, which types of investments would you advise an investor to make?
(A) 20-year Treasury bonds
(B) 20-year zero-coupon bonds
(C) 20-year corporate bonds
(D) 6-month Treasury bills
58. A quote of 102.04 for a 20-year Treasury bond in dollar amounts is
(A) $102.04
(B) $1,020.25
(C) $1,021.25
(D) $1,020.40
59. Which of the following securities are NOT quoted in 32nds?
(A) GNMAs
(B) Treasury notes
(C) Treasury bills
(D) FNMAs
60. An investor seeking the highest return from a typical "plain vanilla" CMO would invest in the
(A) principal-only tranche
(B) interest-only tranche
(C) first tranche
(D) last tranche
61. Which of the following best describes the purpose of the Federal National Mortgage Association?
(A) Lends mortgage money directly to qualified veterans
(B) Sets mortgage rates and terms for qualified buyers of property
(C) Promotes liquidity in the secondary mortgage market
(D) All of the above
62. Which types of risk are avoided when investing in zero-coupon bonds?
I. Inflation risk
II. Interest rate risk
III. Credit risk
IV. Reinvestment rate risk
(A) I and II
(B) II and III
(C) III and IV
(D) II and IV
63. Investors in GNMA pass-through securities receive
(A) monthly payments of interest
(B) monthly payments of interest and principal
(C) monthly interest and principal at maturity
(D) interest on a quarterly basis
64. Treasury Inflation Protection Securities (TIPS) face the greatest erosion to principal from which of the following?
I. Rising interest rates in the economy
II. Declining interest rates in the economy
III. Increasing inflation
IV. Decreasing inflation
(A) I and III
(B) II and IV
(C) I and IV
(D) II and III
65. What is the price of a Treasury bill sold with a discount yield of 1 percent with a maturity of 180 days?
(A) $995
(B) $990
(C) $950
(D) $900
66. An investor wishing to protect an investment against rising inflation should invest in
(A) Treasury bills
(B) Treasury notes
(C) Treasury bonds
(D) common stock
(Continues...)
Excerpted from McGraw-Hill's 500 Series 7 Exam Questions to Know by Test Day by Esmé Faerber Copyright © 2013 by Esmé Faerber. Excerpted by permission of McGraw-Hill Companies, Inc.. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
Preface vii
Preparing for the Exam ix
Chapter 1 Common Stock and Preferred Stock 1
Questions 1-44
Chapter 2 Bonds 13
Questions 45-95
Chapter 3 Municipal Bonds 25
Questions 96-149
Chapter 4 Margin Accounts and Long and Short Investments 37
Questions 150-175
Chapter 5 Options 45
Questions 176-256
Chapter 6 Investment Companies 63
Questions 257-300
Chapter 7 Underwriting: The Securities Act of 1933 73
Questions 301-332
Chapter 8 Exchanges: The NYSE and NASD 83
Questions 333-384
Chapter 9 Direct Participation Programs 97
Questions 385-418
Chapter 10 Taxation Issues 105
Questions 419-447
Chapter 11 Financial Statement Analysis 113
Questions 448-500
Answers 125
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