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FINRA Series 7
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Question 1 of 30
1. Question
Which of the following funds are private investment funds that are legally restricted to very wealthy individuals who have an income surpassing the requisite threshold and at least a $1 million net worth?
Correct
Hedge funds are private investment funds that are legally restricted to very wealthy individuals, individuals who have an income surpassing the requisite threshold and at least a $1 million net worth. Hedge funds are, in essence, mutual funds for the super wealthy.
Incorrect
Hedge funds are private investment funds that are legally restricted to very wealthy individuals, individuals who have an income surpassing the requisite threshold and at least a $1 million net worth. Hedge funds are, in essence, mutual funds for the super wealthy.
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Question 2 of 30
2. Question
When Private investments might involve funding a private company to develop new technologies or simply to be more successful in general then which of the following involve purchasing a public company for the sake of making it private:
Correct
Private equity consists of any equity which isn’t quoted on any public exchanges. Private investments might involve funding a private company to develop new technologies, or simply to be more successful in general. Private equity also might involve purchasing a public company for the sake of making it private.
Incorrect
Private equity consists of any equity which isn’t quoted on any public exchanges. Private investments might involve funding a private company to develop new technologies, or simply to be more successful in general. Private equity also might involve purchasing a public company for the sake of making it private.
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Question 3 of 30
3. Question
Which of the following securities are linked to some other underlying asset, such as another security, a group of securities, a commodity, and index, or something else:
Correct
Structured products are securities which are linked to some other underlying asset, such as another security, a group of securities, a commodity, and index, or something else. Structured products can sometimes have a “principal guarantee” feature, which means simply that the principal is guaranteed to return if the investor holds the investment for long enough
Incorrect
Structured products are securities which are linked to some other underlying asset, such as another security, a group of securities, a commodity, and index, or something else. Structured products can sometimes have a “principal guarantee” feature, which means simply that the principal is guaranteed to return if the investor holds the investment for long enough
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Question 4 of 30
4. Question
Which of the following annuities are not considered securities, because all the risk is on the insurance company, not the buyer?
Correct
Fixed annuities are not considered securities, because all the risk is on the insurance company, not the buyer.
Incorrect
Fixed annuities are not considered securities, because all the risk is on the insurance company, not the buyer.
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Question 5 of 30
5. Question
Which of the following statements is (are) true for the variable annuity?
I. Purchaser is taking the risk
II. It guarantees payments for life
III. It is considered security
IV. All the risk is on the insurance company, not the buyerCorrect
Variable annuities are considered securities, because the purchaser is taking the risk. With variable annuities, investors’ monies are deposited into an account separate from the insurance company’s general account, and the company invests these funds. Variable annuities guarantee payments for life, but don’t guarantee the amount of the payments or the rate of return on the investment.
Incorrect
Variable annuities are considered securities, because the purchaser is taking the risk. With variable annuities, investors’ monies are deposited into an account separate from the insurance company’s general account, and the company invests these funds. Variable annuities guarantee payments for life, but don’t guarantee the amount of the payments or the rate of return on the investment.
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Question 6 of 30
6. Question
Which of the following charge is meant to cover the cost for keeping the account on the books, and therefore is usually waived for individuals who notify the insurance company of the cancellation sufficiently in advance?
Correct
The surrender charge is meant to cover the cost for keeping the account on the books, and therefore is usually waived for individuals who notify the insurance company of the cancellation sufficiently in advance.
Incorrect
The surrender charge is meant to cover the cost for keeping the account on the books, and therefore is usually waived for individuals who notify the insurance company of the cancellation sufficiently in advance.
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Question 7 of 30
7. Question
The time during which the purchaser of an annuity is paying into the annuity, up until the time the purchaser begins receiving income payments, is known as:
Correct
The time during which the purchaser of an annuity is paying into the annuity, up until the time the purchaser begins receiving income payments, is called the accumulation phase.
Incorrect
The time during which the purchaser of an annuity is paying into the annuity, up until the time the purchaser begins receiving income payments, is called the accumulation phase.
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Question 8 of 30
8. Question
Which of the following statement reflects when the insurance company pays the annuitant until he dies; after the annuitant dies, no payments are given to beneficiaries:
Correct
With life income, the insurance company pays the annuitant until he dies; after the annuitant dies, no payments are given to beneficiaries.
Incorrect
With life income, the insurance company pays the annuitant until he dies; after the annuitant dies, no payments are given to beneficiaries.
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Question 9 of 30
9. Question
When two parties, usually husband and wife are entitled to one payment, and when the first party dies, the other party receives the payments until his or her death is related to which of the following:
Correct
The last option is joint life with last survivor. With this arrangement, two parties, usually husband and wife, are entitled to one payment, and when the first party dies, the other party receives the payments until his or her death.
Incorrect
The last option is joint life with last survivor. With this arrangement, two parties, usually husband and wife, are entitled to one payment, and when the first party dies, the other party receives the payments until his or her death.
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Question 10 of 30
10. Question
Money from large numbers of investors is pooled and invested for their mutual benefit in the insurance company’s separate account is related to:
Correct
Money from large numbers of investors is pooled and invested for their mutual benefit in the insurance company’s separate account, just as in a mutual fund. Many of these separate accounts are registered as open-end management investment companies.
Incorrect
Money from large numbers of investors is pooled and invested for their mutual benefit in the insurance company’s separate account, just as in a mutual fund. Many of these separate accounts are registered as open-end management investment companies.
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Question 11 of 30
11. Question
Which of the following refers to specific investment accounts owned by an insurance company?
Correct
Separate accounts refer to specific investment accounts owned by an insurance company. These accounts are isolated from the insurance company’s general investments, which mean that they are not guaranteed by the insurance company (the investments provide a variable rate of return), although it also means that the investments are safe if the insurance company becomes insolvent.
Incorrect
Separate accounts refer to specific investment accounts owned by an insurance company. These accounts are isolated from the insurance company’s general investments, which mean that they are not guaranteed by the insurance company (the investments provide a variable rate of return), although it also means that the investments are safe if the insurance company becomes insolvent.
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Question 12 of 30
12. Question
When the annuitant is contributing funds into an annuity, he actually purchases particular units. These units are known as:
Correct
When the annuitant is contributing funds into an annuity, he actually purchases particular units. These units are accumulation units, and they vary in price; a series of fixed contributions by the annuitant might purchase more units or fewer, depending on the units.
Incorrect
When the annuitant is contributing funds into an annuity, he actually purchases particular units. These units are accumulation units, and they vary in price; a series of fixed contributions by the annuitant might purchase more units or fewer, depending on the units.
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Question 13 of 30
13. Question
Which of the following statement(s) is not true related to immediate payment annuities?
I. They are suitable for retired persons who fear they may outlast their retirement savings
II. These annuity payments are cancelled upon the death of the annuitant
III. They carry the risk
IV. Annuitant will receive an equal number of annuity units per distribution.Correct
Immediate payment annuities are suitable for retired persons who fear they may outlast their retirement savings, but since these annuity payments are cancelled upon the death of the annuitant, they carry the risk, in cases of early death, of significantly decreasing an inheritance.
Incorrect
Immediate payment annuities are suitable for retired persons who fear they may outlast their retirement savings, but since these annuity payments are cancelled upon the death of the annuitant, they carry the risk, in cases of early death, of significantly decreasing an inheritance.
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Question 14 of 30
14. Question
A provision in an insurance contract which waives the policyholder of any obligation to pay further premiums but still be entitled to the insurance benefits is called:
Correct
A waiver of premium is a provision in an insurance contract which waives the policyholder of any obligation to pay further premiums but still be entitled to the insurance benefits. This waiver kicks in due to some serious disability for the policyholder and usually only after the policyholder has been disabled for some period of time (e.g. six months)
Incorrect
A waiver of premium is a provision in an insurance contract which waives the policyholder of any obligation to pay further premiums but still be entitled to the insurance benefits. This waiver kicks in due to some serious disability for the policyholder and usually only after the policyholder has been disabled for some period of time (e.g. six months)
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Question 15 of 30
15. Question
In which of the following process an annuity investment is converted into payments?
Correct
Annuitization is the process by which an annuity investment is converted into payments. The fixed annuitization method takes the total account balance for the annuitant and divides it by a particular annuity factor (which factor is derived from an IRS table) to arrive at an equal payment that cannot later be changed.
Incorrect
Annuitization is the process by which an annuity investment is converted into payments. The fixed annuitization method takes the total account balance for the annuitant and divides it by a particular annuity factor (which factor is derived from an IRS table) to arrive at an equal payment that cannot later be changed.
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Question 16 of 30
16. Question
Which of the following relates to the rate of growth, assumed by the insurance company that is necessary for the underlying investments of an annuity to cover the insurance company’s costs and provide the company with its target profit margin?
Correct
The assumed interest rate (AIR) is the rate of growth, assumed by the insurance company that is necessary for the underlying investments of an annuity to cover the insurance company’s costs and provide the company with its target profit margin. The AIR enters into the calculation to determine an annuitant’s periodic income payments.
Incorrect
The assumed interest rate (AIR) is the rate of growth, assumed by the insurance company that is necessary for the underlying investments of an annuity to cover the insurance company’s costs and provide the company with its target profit margin. The AIR enters into the calculation to determine an annuitant’s periodic income payments.
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Question 17 of 30
17. Question
Which of the following annuity gives periodic payments to the annuitant during the annuity’s distribution period, then each payment will be considered as partly a return of the original investment and partly a gain on the investment?
I. Fixed annuities
II. Variable annuities
III. Death benefits on annuities
IV. Distributed annuityCorrect
If an annuity gives periodic payments to the annuitant during the annuity’s distribution period, then each payment will be considered as partly a return of the original investment (and thus nontaxable) and partly a gain on the investment (and thus taxable). For fixed annuities (annuities paying a series of fixed payments), the particular composition of principal and gain (i.e. original investment and gain) is determined by an exclusion ratio, which is calculated as follows:
Exclusion Ratio = Original Investment / Expected Total PayoutIncorrect
If an annuity gives periodic payments to the annuitant during the annuity’s distribution period, then each payment will be considered as partly a return of the original investment (and thus nontaxable) and partly a gain on the investment (and thus taxable). For fixed annuities (annuities paying a series of fixed payments), the particular composition of principal and gain (i.e. original investment and gain) is determined by an exclusion ratio, which is calculated as follows:
Exclusion Ratio = Original Investment / Expected Total Payout -
Question 18 of 30
18. Question
During which of the following period if an annuitant dies, then the money will go to the specified beneficiaries, who will have to pay taxes on any gain earned in the annuity up to that point; they will have to pay ordinary income tax rates:
Correct
If an annuitant dies in the accumulation period, then the money will go to the specified beneficiaries, who will have to pay taxes on any gain earned in the annuity up to that point; they will have to pay ordinary income tax rates.
Incorrect
If an annuitant dies in the accumulation period, then the money will go to the specified beneficiaries, who will have to pay taxes on any gain earned in the annuity up to that point; they will have to pay ordinary income tax rates.
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Question 19 of 30
19. Question
Which of the following term relates to the payments being made to the annuitant while he is alive, so that the company is not obligated to make any other payments if he dies:
Correct
A “life-only annuity” means that payments are made to the annuitant while he is alive, so that the company is not obligated to make any other payments if he dies.
Incorrect
A “life-only annuity” means that payments are made to the annuitant while he is alive, so that the company is not obligated to make any other payments if he dies.
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Question 20 of 30
20. Question
Which of the following statements is (are) true related to direct participation programs?
I. It contains at least one general partner and at least one limited partner
II. The profits, losses, and income flow directly
III. It itself pays no taxes
IV. It has more responsibilities and liabilities than does the limited partnerCorrect
Direct participation programs (DPPs), also called direct participation plans, are flow-through investments. The profits, losses, and income flow through the DPP and to the investors directly. The DPP itself pays no taxes; only the individual investors do. DPPs are organized as limited partnerships, and the two terms are generally used interchangeably.
Incorrect
Direct participation programs (DPPs), also called direct participation plans, are flow-through investments. The profits, losses, and income flow through the DPP and to the investors directly. The DPP itself pays no taxes; only the individual investors do. DPPs are organized as limited partnerships, and the two terms are generally used interchangeably.
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Question 21 of 30
21. Question
Which of the following type of partnership must have at least one general partner and at least one limited partner, although they usually have more:
Correct
A limited partnership must have at least one general partner and at least one limited partner, although they usually have more.
Incorrect
A limited partnership must have at least one general partner and at least one limited partner, although they usually have more.
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Question 22 of 30
22. Question
Which of the following is not true related to general partner?
Correct
The general partner does the actual managing of the business and makes decisions that are legally binding for everyone in the partnership. He may be paid for services as a general partner, and may buy and sell property on behalf of the partnership. The general partner may not borrow money from the partnership (although the partnership may borrow from the general partner).
Incorrect
The general partner does the actual managing of the business and makes decisions that are legally binding for everyone in the partnership. He may be paid for services as a general partner, and may buy and sell property on behalf of the partnership. The general partner may not borrow money from the partnership (although the partnership may borrow from the general partner).
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Question 23 of 30
23. Question
Which of the following cannot make management decisions, but does have the right to sue the general partner if he believes that the general partner is not acting in the best interests of the partnership?
Correct
The limited partner cannot make management decisions, but does have the right to sue the general partner if he believes that the general partner is not acting in the best interests of the partnership. Limited partners are allowed to vote on certain partnership matters, and they can inspect the financial records and accounting books of the partnership if they so desire. But their main role is to put up the money, while the general partner actually runs the business.
Incorrect
The limited partner cannot make management decisions, but does have the right to sue the general partner if he believes that the general partner is not acting in the best interests of the partnership. Limited partners are allowed to vote on certain partnership matters, and they can inspect the financial records and accounting books of the partnership if they so desire. But their main role is to put up the money, while the general partner actually runs the business.
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Question 24 of 30
24. Question
Which of the following statement is true regarding the dissolution of limited partnership?
I. Terms for the dissolution of a limited partnership can vary according to the specific agreement of the partnership
II. Any partner can give a notice to the other partners of his intent to dissolve the partnership
III. Limited partnerships are ended simply by a limited partner’s death, retirement, or bankruptcy.
IV. Limited partners have lesser abilities to dissolve the partnership than partners do in general partnerships.Correct
Terms for the dissolution of a limited partnership can vary according to the specific agreement of the partnership, but other restrictions apply independently of those terms. While in general partnerships (i.e. non-limited partnerships), any partner can give a notice to the other partners of
his intent to dissolve the partnership, it is not the same with limited partnerships. Only general partners can issue such notice; limited partners are not able to do so. Moreover, unlike general partnerships, limited partnerships are not ended simply by a limited partner’s death, retirement, or
bankruptcy. The fundamental detail to know is that limited partners have lesser abilities to dissolve the partnership than partners do in general partnerships.Incorrect
Terms for the dissolution of a limited partnership can vary according to the specific agreement of the partnership, but other restrictions apply independently of those terms. While in general partnerships (i.e. non-limited partnerships), any partner can give a notice to the other partners of
his intent to dissolve the partnership, it is not the same with limited partnerships. Only general partners can issue such notice; limited partners are not able to do so. Moreover, unlike general partnerships, limited partnerships are not ended simply by a limited partner’s death, retirement, or
bankruptcy. The fundamental detail to know is that limited partners have lesser abilities to dissolve the partnership than partners do in general partnerships. -
Question 25 of 30
25. Question
Which of the following partnerships invest in the construction of low-income and retirement housing?
Correct
Public housing partnerships invest in the construction of low-income and retirement housing. Since these housing programs are government-assisted (e.g. missing rent payments are covered by the U.S. Department of Housing and Urban Development), they are considered the safest form of real-estate partnership.
Incorrect
Public housing partnerships invest in the construction of low-income and retirement housing. Since these housing programs are government-assisted (e.g. missing rent payments are covered by the U.S. Department of Housing and Urban Development), they are considered the safest form of real-estate partnership.
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Question 26 of 30
26. Question
Which of the following properties invest in mere land, not purchasing buildings or intending to build on the land?
Correct
Raw land partnerships invest in mere land, not purchasing buildings or intending to build on the land. Their aim is to make money on capital gains as the value of the land increases. These are the riskiest form of real-estate DPP.
Incorrect
Raw land partnerships invest in mere land, not purchasing buildings or intending to build on the land. Their aim is to make money on capital gains as the value of the land increases. These are the riskiest form of real-estate DPP.
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Question 27 of 30
27. Question
Which of the following partnerships seek to make a profit by purchasing and leasing various assets, such as computers, trucks, or machinery?
Correct
Equipment leasing partnerships seek to make a profit by purchasing and leasing various assets, such as computers, trucks, or machinery.
Incorrect
Equipment leasing partnerships seek to make a profit by purchasing and leasing various assets, such as computers, trucks, or machinery.
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Question 28 of 30
28. Question
Which of the following partnerships aim to make a profit through various investments?
Correct
Oil and gas partnerships aim to make a profit through various investments involving the extraction of oil and gas
Incorrect
Oil and gas partnerships aim to make a profit through various investments involving the extraction of oil and gas
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Question 29 of 30
29. Question
Which of the following statements is (are) related to the function of Oil and gas partnerships:
I. Income oil and gas DPPs purchase wells that already exist
II. Developmental oil and gas DPPs search for new reserves in areas near wells
III. Exploratory oil and gas DPPs search new areas to find new oil and drill
IV. Combination oil and gas DPPsCorrect
(i)Exploratory oil and gas DPPs search new areas to find new oil and drill for it. This is the riskiest oil and gas DPP, and its activity is also called “wildcatting.”(ii) Developmental oil and gas DPPs search for new reserves in areas near wells that are already extracting oil or gas. (iii) Income oil and gas DPPs purchase wells that already exist. IV) Combination oil and gas DPPs involve any assortment of the previous three.
Incorrect
(i)Exploratory oil and gas DPPs search new areas to find new oil and drill for it. This is the riskiest oil and gas DPP, and its activity is also called “wildcatting.”(ii) Developmental oil and gas DPPs search for new reserves in areas near wells that are already extracting oil or gas. (iii) Income oil and gas DPPs purchase wells that already exist. IV) Combination oil and gas DPPs involve any assortment of the previous three.
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Question 30 of 30
30. Question
Which of the following relates to the costs for items used in extracting oil or gas that have a salvage value upon disposal (e.g. storage tanks, drills)—basically, the equipment used in drilling?
Correct
Tangible drilling costs (TDCs) are any costs for items used in extracting oil or gas that have a salvage value upon disposal (e.g. storage tanks, drills)—basically, the equipment used in drilling. These costs can be deducted as the equipment is depreciated, with the deduction equaling the depreciation expense for that year.
Incorrect
Tangible drilling costs (TDCs) are any costs for items used in extracting oil or gas that have a salvage value upon disposal (e.g. storage tanks, drills)—basically, the equipment used in drilling. These costs can be deducted as the equipment is depreciated, with the deduction equaling the depreciation expense for that year.