Series 7 Practice Exam
This is a free 15-question Series 7 sampler written by the StudyPDF team. It covers equity and debt securities, yield relationships and bond pricing, municipal securities and their tax treatment, options and their break-even points, packaged products and their fees, margin, retirement accounts and suitability, mixing multiple choice, select all that apply and fill in the blank. Answer all 15 questions, then check your score and read the explanation for every question. These are practice items written from FINRA's public content outline, not real exam questions, and nothing here is investment or tax advice.
A corporate bond with a fixed coupon is trading at 90. Which ranking of its yields is correct?
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All 15 questions at a glance
Prefer to read before you play? Every question in the sampler is listed below. Answers and explanations stay collapsed until you open them.
1. A corporate bond with a fixed coupon is trading at 90. Which ranking of its yields is correct?
- A. All three are equal, because the coupon never changes
- B. Nominal yield is highest, then current yield, then yield to maturity
- C. Current yield is highest, then yield to maturity, then nominal yield
- D. Yield to maturity is highest, then current yield, then nominal yield
Show answer and explanation
Answer: D. Yield to maturity is highest, then current yield, then nominal yield
A price of 90 means 90 percent of par, so the bond trades at a discount. The nominal yield is fixed against par, the current yield divides the same coupon by a smaller price so it is higher, and the yield to maturity adds the discount the holder collects at maturity on top of that. At a premium the whole order flips, which is why memorizing one sequence without the reason costs points.
2. A customer buys a general obligation bond issued by a municipality and sells it three years later at a profit. Which statement about the federal tax treatment is correct?
- A. Both the interest and the capital gain are exempt from federal income tax
- B. Both the interest and the capital gain are taxable at the federal level
- C. The interest is exempt from federal income tax and the capital gain is taxable
- D. The interest is taxable and the capital gain is exempt
Show answer and explanation
Answer: C. The interest is exempt from federal income tax and the capital gain is taxable
Interest on most municipal bonds is exempt from federal income tax, which is why they appeal to higher bracket investors and why their yields look low next to corporates. The exemption covers the interest only. Selling above your cost basis produces an ordinary capital gain that is taxed like any other. State and local treatment is a separate question and differs by state, so this is exam content and not tax advice.
3. An investor owns 100 shares of QRS bought at 50 and sells 1 QRS 55 call for a premium of 2. The stock rises to 62 and the call is exercised. What is the investor's gain?
- A. $200
- B. $500
- C. $700
- D. $1,200
Show answer and explanation
Answer: C. $700
Writing a covered call caps the upside at the strike price. The shares are called away at 55, so the stock gain is 5 points, or $500, no matter how far past 55 the stock ran. The $200 premium is kept either way, which makes the total $700. The move from 55 to 62 is the opportunity cost the writer accepted in exchange for that premium.
4. An analyst evaluating a municipal revenue bond would look first at:
- A. The issuer's assessed property values and its tax collection record
- B. The debt service coverage ratio of the facility that secures the bond
- C. The statutory debt limit the issuer operates under
- D. The margin in the voter referendum that authorized the bond
Show answer and explanation
Answer: B. The debt service coverage ratio of the facility that secures the bond
A revenue bond is paid from the net revenue of a specific facility such as a toll road, an airport or a water system, so the question that matters is whether that revenue covers debt service with room to spare. The other three items belong to general obligation analysis, because a GO bond is backed by the issuer's taxing power and is usually constrained by debt limits and voter approval.
5. A customer buys $24,000 of marginable common stock in a new margin account. With the Regulation T requirement at 50 percent, how much must the customer deposit?
- A. $6,000
- B. $12,000
- C. $18,000
- D. $24,000
Show answer and explanation
Answer: B. $12,000
Regulation T is set by the Federal Reserve Board and governs how much credit a broker-dealer may extend on a new purchase. At 50 percent the customer puts up half of $24,000, or $12,000, and the firm lends the rest. Two things sit on top of that: FINRA sets a minimum equity for margin accounts, and firms are free to impose stricter house requirements, so the number a customer actually has to send can be higher.
6. Which statement about a Roth IRA is correct?
- A. Contributions are made with after-tax dollars and qualified withdrawals are free of federal income tax
- B. Contributions are tax deductible and qualified withdrawals are free of federal income tax
- C. Contributions are tax deductible and qualified withdrawals are taxed as ordinary income
- D. Contributions are made with after-tax dollars and qualified withdrawals are taxed as capital gains
Show answer and explanation
Answer: A. Contributions are made with after-tax dollars and qualified withdrawals are free of federal income tax
A Roth gives up the deduction going in and pays off on the way out, since a qualified distribution comes out free of federal income tax. A traditional IRA is the mirror image, with a deduction that depends on income and workplace plan coverage, and distributions taxed as ordinary income. Contribution limits, income phase-outs and the conditions that make a distribution qualified are set by the IRS and change, so check the current figures rather than a study page.
7. A customer is short 100 shares of DEF at 40 and wants to limit the loss if the stock rises. Which order does that?
- A. A buy limit order at 45
- B. A sell stop order at 35
- C. A sell limit order at 45
- D. A buy stop order at 45
Show answer and explanation
Answer: D. A buy stop order at 45
A short seller loses when the price rises, so the protective order has to buy the shares back on the way up. Stop orders to buy are placed above the market and turn into market orders once the stock trades at or through the stop price. Limit orders to buy sit below the market, which is the opposite side. Note that a stop does not guarantee a fill at 45, because once it is triggered it competes with everything else at the market.
8. A customer wants to put $47,000 into the Class A shares of one mutual fund family. The next sales charge breakpoint is at $50,000, and the representative says nothing about it. This is:
- A. Acceptable, because the customer chose the amount
- B. A breakpoint sale, which is a violation
- C. Acceptable, because breakpoints only apply to Class B shares
- D. A markup violation
Show answer and explanation
Answer: B. A breakpoint sale, which is a violation
Class A shares carry a front-end sales charge that drops at set investment levels called breakpoints. Selling an amount just below one, so the customer pays the higher charge, is a breakpoint sale and it is a violation whether or not it was deliberate. The representative has to disclose the breakpoint and explain the tools that reach it, including a letter of intent and rights of accumulation on existing holdings in the same family.
9. A 66-year-old customer has just retired, needs income from her portfolio, and says she cannot tolerate a loss of principal. Which recommendation best fits that profile?
- A. A ladder of investment grade bonds together with a conservative income fund
- B. Writing uncovered calls to generate premium income
- C. A concentrated position in one small cap growth stock
- D. A leveraged ETF held as a long term core holding
Show answer and explanation
Answer: A. A ladder of investment grade bonds together with a conservative income fund
Suitability is judged against the whole customer profile, and this one names income, preservation of principal and a low risk tolerance. A bond ladder produces regular income and returns principal on a known schedule. Uncovered call writing carries theoretically unlimited loss, a single small cap position is concentration risk, and leveraged ETFs reset their exposure daily and are built for short holding periods, so all three conflict with at least one stated need.
10. Under FINRA's suitability rule, which of the following belong in the customer investment profile a representative must try to obtain before making a recommendation?
Select all that apply.
- A. The customer's investment time horizon
- B. The customer's liquidity needs
- C. The representative's own forecast for interest rates
- D. The customer's tax status
- E. The commission the recommendation would pay the branch
Show answer and explanation
Answer: A. The customer's investment time horizon, B. The customer's liquidity needs, D. The customer's tax status
The rule lists the customer's age, other investments, financial situation and needs, tax status, investment objectives, investment experience, time horizon, liquidity needs and risk tolerance. Every item on that list describes the customer, not the firm and not the market. A representative's own view of rates may shape what she recommends, but it is not part of the profile, and letting compensation drive a recommendation is the exact conflict these rules exist to control.
11. Which of the following are required when a customer opens an account to trade options?
Select all that apply.
- A. The options disclosure document is delivered at or before the time the account is approved
- B. A qualified principal such as a registered options principal approves the account
- C. The signed options agreement is returned within 15 days of account approval
- D. The customer deposits at least 50 percent of every premium in cash
- E. The customer signs a statement acknowledging that losses are impossible
Show answer and explanation
Answer: A. The options disclosure document is delivered at or before the time the account is approved, B. A qualified principal such as a registered options principal approves the account, C. The signed options agreement is returned within 15 days of account approval
The options disclosure document, formally Characteristics and Risks of Standardized Options, has to reach the customer no later than account approval, and a qualified principal has to approve the account before any options trading begins. The customer then returns the signed options agreement within 15 days of approval. There is no blanket 50 percent cash rule for premiums, and no firm may ever suggest that losses are impossible.
12. Which of the following charges can a customer expect inside a variable annuity?
Select all that apply.
- A. A mortality and expense risk charge
- B. FDIC insurance premiums on the account value
- C. Investment management fees on the separate account subaccounts
- D. A surrender charge that declines over a set number of years
- E. A guaranteed fixed rate of return on every subaccount
Show answer and explanation
Answer: A. A mortality and expense risk charge, C. Investment management fees on the separate account subaccounts, D. A surrender charge that declines over a set number of years
A variable annuity stacks insurance costs on top of investment costs. The mortality and expense risk charge pays for the insurance guarantees, the subaccounts carry their own management fees like the mutual funds they resemble, and a surrender charge claws back the sales cost if the contract is cashed in early. Variable annuities are securities, not bank deposits, so there is no FDIC coverage and no guaranteed return on the subaccounts. That layered cost is the whole reason suitability gets scrutinized here.
13. Complete the sentence.
An investor buys 1 ABC October 40 call and pays a premium of 3. At expiration the position breaks even when ABC trades at _____.
Options for blank 1: 34, 37, 43, 46
Show answer and explanation
Answer: 43
A call buyer only starts making money once the stock clears the strike by enough to pay back the premium, so the break-even is strike plus premium, or 43 here. Anything below 40 leaves the call worthless and the loss capped at the $300 paid. For a long put the logic reverses and the break-even is strike minus premium.
14. Complete the sentence.
An investor buys 1 XYZ 50 call at 3 and 1 XYZ 50 put at 2. The upside break-even is _____ and the downside break-even is _____.
Options for blank 1: 52, 53, 55
Options for blank 2: 45, 47, 48
Show answer and explanation
Answer: 55, 45
This is a long straddle, and the buyer paid 5 points in total premium. Add that to the strike for the upside break-even of 55, and subtract it for the downside break-even of 45. The straddle buyer is betting on a large move in either direction and loses the entire 5 points only if the stock finishes right at 50.
15. Complete the sentence.
A corporate bond carries a 6 percent coupon and is trading at 80. Its current yield is _____ percent.
Options for blank 1: 4.8, 6.0, 7.5, 8.0
Show answer and explanation
Answer: 7.5
Current yield is the annual coupon divided by the current market price. A quote of 80 means 80 percent of the $1,000 par value, so $60 divided by $800 gives 7.5 percent. Because the bond is at a discount, the yield to maturity is higher still, since the holder also collects the $200 difference at maturity.
What the Series 7 exam actually covers
The Series 7 is FINRA's General Securities Representative exam. You do not sit it on your own. A FINRA member firm has to hire you and file a Form U4, so the exam needs a sponsor, and it sits on top of the Securities Industry Essentials exam, which FINRA treats as a corequisite. You have to pass both to hold the General Securities Representative registration. FINRA's own exam page currently lists 125 questions, 3 hours and 45 minutes, and a passing score of 72. Those details do get updated, so confirm them and read the current content outline at finra.org before you schedule anything.
FINRA organizes the exam around four job functions rather than by product. Seeking business for the broker-dealer is the smallest at 9 questions. Opening accounts after obtaining and evaluating a customer's financial profile and investment objectives is 11. Providing customers with information about investments, making suitable recommendations, transferring assets and maintaining records is 91. Obtaining and verifying purchase and sale instructions and processing transactions is 14. Function three is close to three quarters of the exam, which tells you where the hours go: equity and debt securities, yields and bond pricing, municipal securities, options, packaged products such as mutual funds and variable annuities, direct participation programs, margin and retirement accounts.
Two things surprise people who have just passed the SIE. The Series 7 goes much deeper on the same products. The SIE asks what a municipal bond is, and the Series 7 asks how its interest is taxed, how an analyst sizes it up and what you are allowed to tell a customer about it. The other surprise is scope. This is a federal exam covering SEC, FINRA and MSRB rules, not the state securities law that the Series 63 tests. Nothing on this page is investment, tax or legal advice. It explains what an exam asks.
How to use this sampler and how to study for the Series 7
The StudyPDF team wrote all 15 questions and explanations from FINRA's published content outline. They are not FINRA's questions, none of them came from a commercial prep bank, and StudyPDF is not affiliated with FINRA or with any prep provider. They lean toward the reasoning the exam rewards rather than definitions: why a discount bond's yield to maturity beats its coupon, what a covered call gives up in exchange for the premium, what a revenue bond analyst reads first, and which facts actually belong in a customer profile.
Take it in one sitting without notes, then read the explanation for every question, including the ones you got right. Treat a wrong answer as a topic rather than a fact. If you missed the yield ranking question and the current yield calculation, the gap is bond pricing as a whole, so go back and work through price, coupon, current yield, yield to maturity and yield to call together until you can run the ordering in both directions without thinking about it.
Two areas repay drilling far more than rereading. Options need a worksheet habit. Write down the strike, the premium, the direction and the break-even before you look at the choices, and do it for calls, puts, spreads and straddles until the arithmetic is boring. Municipal tax treatment needs the same discipline, because the line between interest and a capital gain, and between a federal rule and a state rule, is exactly where the exam sets its traps. The sibling quizzes below cover the level underneath this one and the state law side of the same career step.
How StudyPDF builds full practice tests from your prep book
Fifteen questions can show you where you are thin. They cannot carry you through a 125 question exam on their own, and a generic bank rarely matches the emphasis of the prep course your firm bought you.
StudyPDF works from your own material instead. You upload the Series 7 prep book you paid for, the study package your firm handed you in your first week, the class PDFs from your review course or the notes you have been typing on the train, and Bo, the study agent, builds full length practice tests from those exact pages. Every question is grounded in what you uploaded, and every explanation cites where the answer came from, so you can open the source the moment something looks off. You can regenerate fresh tests as often as you like, narrow one to a single area such as options or municipal securities, and track which concepts keep costing you points. That matters most when you are studying around a full time job and cannot afford to reread a chapter you already know.
You do not have to upload anything to start. If you have no file at hand, name a topic instead, for example options break-even points, municipal bond taxation or Regulation T margin, and Bo writes a practice test from that. Starting is free.
Written by the StudyPDF team. Last updated 2026-08-19.