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Bubba buys a 5% bond that matures in 15 years with a 5.10 basis. How much did he pay for the bond?

  1. 5.00
  2. 98.96
  3. 100.00
  4. 105.10

Answer(s): B

Explanation:

98.96. A calculator is not required for this. Even Bubba knows the bond is obviously trading at a slight discount by yielding 5.10% instead of the coupon rate of 5%. If the yield was the same as the coupon rate, the price is 100.00.



Bonds are most often quoted as a percentage of:

  1. face value
  2. book value
  3. market value
  4. whatever value the broker says

Answer(s): A

Explanation:

face value. The price is 100.00 if the yield is the same as the coupon rate. A price of less than
100.00 means the yield is higher than the coupon rate. A price of more than 100.00 means the yield is lower than the coupon rate. The prices are a percentage of 100.00. However, treasury bonds and municipal bonds are not quoted in this way.



Which of the following is a right for shareholders of common stock?

  1. the right to have the stock price increase
  2. the right to vote about important matters of the company
  3. the right to dividends
  4. both B and C

Answer(s): B

Explanation:

the right to vote about important matters of the company. Shareholders have no expectation of stock price increase or dividends. They are entitled to receive dividends only if the board of directors declares them.



Who owns a corporation?

  1. the owners of debentures
  2. the holders of common stock
  3. the holders of common stock and the holders of preferred stock
  4. the government

Answer(s): C

Explanation:

the holders of common stock and the holders of preferred stock. The holders of all classes of stock are the owners. Each stock class has separate privileges, but all represent ownership. Even if the government is an owner, it holds shares of stock.






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