FINRA Series 7

C. Be accompanied or preceded by the delivery of the Options Disclosure Document (ODD)

Options communications recommending specific strategies must be preceded or accompanied by the Options Disclosure Document (ODD), also known as "Characteristics and Risks of Standardized Options," so investors understand the risks before or simultaneously with receiving promotional material.

C. 9:00 p.m.

Telemarketing calls to residential customers may only be made between 8:00 a.m. and 9:00 p.m., local time of the called party. Calls outside this window violate telemarketing rules regardless of the caller's own time zone.

D. That the firm acted as principal in the transaction

SEC and FINRA rules require confirmations to disclose the capacity in which the firm acted — either as agent (broker) or principal (dealer) — on every transaction. When acting as principal, the firm must disclose this fact on the confirmation.

D. $42.00

Parity price of the stock = bond market price ÷ conversion ratio = $1,050 ÷ 25 = $42.00. This is the price at which the stock would need to trade for the converted shares to equal the current bond value.

D. 5.88%

Taxable equivalent yield = Municipal yield ÷ (1 − tax bracket) = 4% ÷ (1 − 0.32) = 4% ÷ 0.68 = 5.88%. The corporate bond would need to yield approximately 5.88% to match the municipal bond's after-tax return.

D. $2,500

Initial purchase: 1,000 × $50 = $50,000; debit balance (loan) = 50% = $25,000. New market value = 1,000 × $30 = $30,000. Equity = $30,000 − $25,000 = $5,000. Maintenance requirement = 25% × $30,000 = $7,500. Margin call = $7,500 − $5,000 = $2,500.

A. Limited (trading) power of attorney

A limited (trading) power of attorney grants authority to enter trades on behalf of the customer but does not permit withdrawals of cash or securities. A full power of attorney would additionally allow withdrawals, which the customer wants to prevent.

A. $300

Maximum loss on a debit spread equals the net premium paid. Net debit = $5 (paid) − $2 (received) = $3 = $300 per contract. This loss occurs if XYZ closes at or below $50 at expiration, causing both options to expire worthless.

C. $500

Equity = $15,000 market value − $7,000 debit = $8,000. Reg T requirement on current market value = 50% × $15,000 = $7,500. Excess equity (SMA) = $8,000 − $7,500 = $500, which is the maximum cash withdrawable.

D. $18,000

Long equity = LMV − Debit = $20,000 − $8,000 = $12,000. Short equity = Credit − SMV = $16,000 − $10,000 = $6,000. Combined equity = $12,000 + $6,000 = $18,000.

C. The firm may contact the trusted contact to address possible financial exploitation or to confirm the customer's current contact information

FINRA Rule 4512 requires firms to make reasonable efforts to obtain a trusted contact's information, which allows the firm to reach out regarding suspected exploitation, cognitive decline, or to verify the customer's whereabouts. Providing a trusted contact is not mandatory to open the account, and no court order is needed.

B. Quarterly

FINRA rules require account statements to be sent at least quarterly for accounts that carry securities positions, even if there has been no trading activity. Monthly statements are only required when there is activity in the account during that month.

D. The customer's investment objectives, time horizon, liquidity needs, and risk tolerance

Under FINRA Rule 2111 and Reg BI, firms must gather essential facts about the customer's investment profile, including investment objectives, time horizon, liquidity needs, risk tolerance, financial situation, and other relevant factors, to support suitable recommendations.

D. It is correspondence and does not require prior principal approval, but must be reviewed under the firm's supervisory procedures

Because the email went to 20 retail investors (25 or fewer) within 30 days, it is classified as correspondence under Rule 2210. Correspondence does not require prior principal approval but must be supervised in a manner consistent with Rule 3110, such as risk-based post-use review.

C. $5,000 (the greater of $5 per share or 100% of market value)

For short positions in stocks trading under $5 per share, FINRA's maintenance margin requirement is the greater of $5 per share or 100% of the market value. Here, $5 × 1,000 shares = $5,000, which is greater than 100% of the $3,000 market value, so the requirement is $5,000.

A. $10,000, since gains are withdrawn first under LIFO

Nonqualified annuity withdrawals are taxed on a LIFO (last-in, first-out) basis, meaning earnings are considered withdrawn first. Since the annuity has $20,000 of gain ($60,000 − $40,000), the entire $10,000 withdrawal is treated as gain, fully taxable as ordinary income, and subject to a 10% penalty since the client is under age 59½.

B. Each spouse is deemed to own 50% of the account, and the deceased spouse's half becomes part of their estate

In community property states, marital assets acquired during the marriage are generally considered owned equally (50/50) by each spouse, regardless of whose name or income funded the account. Upon death, the decedent's 50% share passes through their estate, not automatically to the survivor (unless titled as JTWROS).

A. $500

Initial proceeds = 100 × $40 = $4,000; Reg T margin deposit = 50% × $4,000 = $2,000; total credit balance = $6,000. Current market value = 100 × $50 = $5,000. Equity = Credit balance − Market value = $6,000 − $5,000 = $1,000. Required maintenance = 30% × $5,000 = $1,500. Margin call = $1,500 − $1,000 = $500.

C. Bond B, because it has a longer maturity and lower coupon rate

Bond price volatility (duration) increases with longer maturity and lower coupon rate. Bond B, with a longer maturity and lower coupon, has higher duration and will therefore experience a greater price decline when interest rates rise.

C. Monthly

FINRA rules require that account statements be sent monthly to customers whose accounts had activity (such as trades) during the period. Inactive accounts need only receive statements quarterly.

D. Buy stop order at 65

A buy stop order is placed above the current market price and becomes a market order once the stock trades at or through the stop price, which is exactly what the customer wants for a breakout purchase.

B. Hypothecation agreement

The hypothecation agreement permits the broker-dealer to re-pledge (hypothecate) the customer's margin securities to a bank as collateral for the loan the firm uses to carry the customer's margin debit balance. This is distinct from the loan consent agreement, which permits the firm to lend the customer's fully-paid or excess margin securities to others (e.g., for short sales).

C. $45 and $55

This is a long straddle. Total premium paid = $3 + $2 = $5. Breakeven points = strike ± total premium = $50 + $5 = $55 (upside) and $50 − $5 = $45 (downside).

B. Tuesday (T+1)

Since May 28, 2024, regular-way settlement for most securities, including equities and corporate bonds, is T+1 (one business day after trade date). A trade executed Monday settles Tuesday.

B. Once the gift is made, it is irrevocable and the assets must be used for the benefit of the minor

Gifts made to a UGMA/UTMA account are irrevocable; the custodian holds the assets as a fiduciary and must use them only for the benefit of the minor. Only one custodian and one minor are permitted per account, and income is taxed to the minor (subject to "kiddie tax" rules), not the custodian.