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FINRA Series 7 General Securities Representative Exam

3. Provides Information, Makes Recommendations, Transfers Assets / Investment companies: practice questions

Our FINRA Series 7 bank has 22 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

Under the Investment Company Act, a mutual fund must generally pay redemption proceeds within:

  1. 1 business day
  2. 3 business days
  3. 7 calendar days
  4. 30 calendar days
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C. 7 calendar days — Section 22(e) of the Investment Company Act requires payment within seven days of tender, with limited exceptions.

Question 2

Mutual fund orders received before the 4 p.m. ET close are priced at:

  1. The average NAV for the trading day
  2. The NAV computed at the prior business day's close
  3. The opening NAV on the next business day
  4. The NAV computed after the order is received
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D. The NAV computed after the order is received — Forward pricing under Investment Company Act Rule 22c-1 requires purchases and redemptions at the next computed NAV.

Question 3

Recommending a mutual fund purchase just below a breakpoint without telling the customer is:

  1. A breakpoint sale, a prohibited practice
  2. An acceptable way to reduce fund expenses
  3. Permitted if disclosed on the trade confirmation
  4. A letter-of-intent purchase allowed by FINRA
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A. A breakpoint sale, a prohibited practice — Breakpoint sales (sales just below a breakpoint to earn higher commissions) violate just and equitable principles of trade under Rule 2010 and FINRA guidance.

Question 4

A mutual fund has a NAV of $9.40 and a public offering price of $10.00. What is the sales charge percentage?

  1. 6.4%
  2. 6.0%
  3. 5.6%
  4. 4.0%
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B. 6.0% — Sales charge % = (POP - NAV) / POP = $0.60 / $10.00 = 6.0%; it is always computed on the POP.

Question 5

Under the Investment Company Act, a diversified fund must have at least 75% of its assets invested so that no more than:

  1. 25% of assets are in any one issuer and no more than 10% of any issuer's voting stock is held
  2. 5% of assets are in any one industry and no more than 25% of any issuer's voting stock is held
  3. 10% of assets are in any one issuer and no more than 5% of any issuer's voting stock is held
  4. 5% of assets are in any one issuer and no more than 10% of any issuer's voting stock is held
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D. 5% of assets are in any one issuer and no more than 10% of any issuer's voting stock is held — The 75-5-10 test of Section 5(b)(1) defines a diversified management company.

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