General Securities Representative Qualification Examination (GS) v7.0

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What is the possible reward for investing in raw land?

  • A. deferred income
  • B. large deductions
  • C. potential capital appreciation
  • D. lack of investment risk


Answer : C

Explanation:
potential capital appreciation. This is the only correct choice. Any income is not deferred, raw land cannot be depreciation for a large deduction, and there is substantial risk.

Under what conditions may an FINRA member firm sell an IPO to an employee of another broker/dealer?

  • A. if the amount of the purchase is small and the transaction accords with the employees normal investment practice
  • B. if the member firm notifies the other broker/dealer of the transaction
  • C. if the employing broker/dealer guarantees that resale of the securities acquired by its employee will be restricted for two years
  • D. under no circumstances


Answer : D

Explanation:
under no circumstances. An FINRA member firm may not, under any circumstances, allocate shares to itself, any of its employees, or to any employee of a firm that underwrites securities.

If a mutual fund has invested its assets by allocating about one-third each for bonds, preferred stocks, and common stocks, it is identified as:

  • A. an income fund
  • B. a specialized fund
  • C. a balanced fund
  • D. a unit investment trust fund


Answer : C

Explanation:
a balanced fund. A balanced fund varies its investments among these categories of holdings.

Prospective bidders for a municipal bond being issued should consult what document for relevant procedures?

  • A. the Eastern account agreement
  • B. the official notice of sale
  • C. the offering circular
  • D. the SEC Registration Statement


Answer : B

Explanation:
the official notice of sale. All bid requirements are found in the official notice of sale.

The gross spread in a new issue depends upon which of the following?

  • A. the amount of the issue
  • B. the type of industry in which the issuer is engaged
  • C. the past record of the issuing corporation
  • D. all of the above


Answer : D

Explanation:
all of the above. The gross spread (or underwriting spread) depends upon all of these factors.

Which of the following does not appear in a municipal syndicate letter to underwriters?

  • A. the specific bid and offering terms of the issue
  • B. the amount of each member’s participation
  • C. the extent of the manager’s authority in directing the offering
  • D. the duration of the syndicate account


Answer : A

Explanation:
the specific bid and offering terms of the issue. The bid and offering terms are determined after the syndicate letter to underwriters.

In regard to discretionary accounts, which of the following statements is correct?

  • A. the customer must approve each transaction in writing before the order is entered
  • B. the customer must grant written authorization to the member firm to exercise discretion in the account
  • C. the account must be accepted in writing by an officer of the member firm
  • D. both B and C


Answer : D

Explanation:
both B and C. Choice A is the opposite of a discretionary account. Both B and C are standard procedures for a discretionary account.

An excerpt from a recent tombstone ad reveals bonds offered publicly at 101.
Why were they priced at a premium?

  • A. to enable investors to establish a tax loss when the bonds are redeemed at maturity
  • B. to reflect prevailing credit ratings and market conditions for the issuer
  • C. to provide the issuer with a larger deduction from pre-tax earnings for higher than usual interest payments
  • D. to comply with SEC rules mandating such pricing for debt issues maturing in the year 2000 and thereafter


Answer : B

Explanation:
to reflect prevailing credit ratings and market conditions for the issuer. Premiums or discounts are used in bond offerings to bring the yield in line with current market conditions.

The Bubba Corporation has 900,000 of common outstanding and holds 100,000 shares as treasury stock. At the end of the third quarter $450,000 is distributed as a dividend on the common.
How much is the dividend per share?

  • A. $0.45
  • B. $0.50
  • C. $2.00
  • D. $2.22


Answer : A

Explanation:
$0.45. Since treasury stock does not receive dividends, divide $450,000 by the outstanding
100,000 shares to arrive at $0.45 per share.

Which of the following will not result in termination of a limited partnership?

  • A. transfer of ownership of a limited partnership interest
  • B. sale or transfer of partnership assets
  • C. majority vote of the limited partners to end the partnership
  • D. arrival of the termination date established in the partnership agreement


Answer : A

Explanation:
transfer of ownership of a limited partnership interest. Transfer of ownership does not result in automatic termination.

Bubba has not existing positions in his account and writes 1 XYZ July 60 put and 1 XYZ
July 60 call.
What is this position called?

  • A. short combination
  • B. long combination
  • C. long straddle
  • D. short straddle


Answer : D

Explanation:
short straddle. A straddle is a put and call on the same stock with the same strike price and expiration date.

Under the Investment Company Act of 1940, what is the minimum net worth of a registered investment company?

  • A. $100,000
  • B. $50,000
  • C. $25,000
  • D. $5,000


Answer : A

Explanation:
$100,000. This was a considerable amount of money in 1940.

When a corporation dissolves, who gets paid first?

  • A. bank lenders
  • B. senior bond holders
  • C. the tax collector
  • D. the lawyer


Answer : C

Explanation:
the tax collector. Taxes always have preference over any other creditors.

Bubba Corporation has a registered public offering of 500,000 shares at $36. Of these,
300,000 shares were authorized by unissued and 200,000 shares were sold on behalf of an affiliated person.
What is evident from this information?

  • A. the entire proceeds of the offering are a primary offering accruing to the corporation
  • B. 300,000 shares are identified as a primary distribution
  • C. 60% of the proceeds are paid to the corporation and the balance accrues to the affiliated person
  • D. both B and C


Answer : D

Explanation:
both B and C. The 200,000 shares are sold on behalf of the affiliated person so the proceeds go to that individual. Only the other 300,000 shares are a primary offering.

Bubba buys one XYZ September 50 call at $7 and sells one XYZ September 60 call at $3.
At that time, XYZ stock is at $55. Bubba has no other stock positions.
What is Bubbas maximum possible profit?

  • A. $500
  • B. $600
  • C. $1,000
  • D. unlimited


Answer : B

Explanation:
$600. The maximum profit is the difference between strike prices less the debit amount.
The debit amount is $4 ($7 - $3). The difference between strike prices is $10 ($60 - $50).
Multiply the $6 difference by 100, which is the number of shares on one option.

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Exam contains 400 questions
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