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FINRA Series 7 General Securities Representative Exam

3. Provides Information, Makes Recommendations, Transfers Assets / Equity securities: practice questions

Our FINRA Series 7 bank has 14 questions on this topic. Here are 5 of them with answers; the full mock exam draws from every topic, like the real one.

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Question 1

An American depositary receipt (ADR) investor faces which risk that a holder of a domestic stock does not?

  1. Market risk
  2. Business risk
  3. Currency risk
  4. Liquidity risk
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C. Currency risk — ADR values and dividends reflect the foreign currency exchange rate; dividends are paid in U.S. dollars after conversion.

Question 2

A company has 1,000,000 shares outstanding and offers rights at 1 right per share, with 10 rights needed to buy one new share at $40. The stock trades cum rights at $50. What is the theoretical value of one right?

  1. $10.00
  2. $0.83
  3. $0.91
  4. $1.00
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C. $0.91 — Cum rights formula: (market price - subscription price) / (rights per share + 1) = ($50 - $40) / 11 = $0.91.

Question 3

After a stock goes ex-rights, the stock trades at $48. The subscription price is $40 and 4 rights buy one share. What is the theoretical value of one right?

  1. $2.40
  2. $1.60
  3. $2.00
  4. $8.00
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C. $2.00 — Ex-rights formula: (market price - subscription price) / rights needed = ($48 - $40) / 4 = $2.00.

Question 4

A customer owns 100 shares of XYZ at $60. XYZ declares a 3-for-2 stock split. After the split the customer owns:

  1. 150 shares at $40
  2. 200 shares at $30
  3. 150 shares at $60
  4. 67 shares at $90
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A. 150 shares at $40 — A 3-for-2 split multiplies shares by 1.5 and divides price by 1.5; the total value of $6,000 is unchanged.

Question 5

Which statement about warrants is accurate?

  1. They are issued only by the Options Clearing Corporation
  2. They pay dividends until they are exercised
  3. They are short-term and priced below market when issued
  4. They usually have a long life and an exercise price above market when issued
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D. They usually have a long life and an exercise price above market when issued — Warrants are long-term issuer options, often attached to bonds or preferred stock as a sweetener, with an exercise price set above the market at issuance.

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