12 real Series-7 sample questions, each with a worked explanation and a rationale for every option, right and wrong. No account, no card. This is the reasoning the Series-7 tests: knowing why the tempting answer is wrong, not just spotting the right one.
The real Series-7 is 125 (130 administered) questions in 225 minutes, pass mark 72%. For a domain-by-domain breakdown and a study plan, read the Series-7 study guide. The full bank has 295 questions.
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How does a general obligation (GO) bond differ from a revenue bond in the source used to service the debt?
- AA GO bond is serviced from the taxing power and general credit of the issuing municipality, whereas a revenue bond is serviced only from the earnings of a specific project or facility.check_circle Correct
- BA GO bond is serviced from the earnings of a single toll facility, whereas a revenue bond is serviced from ad valorem property taxes levied by the issuer.
- CA GO bond is serviced by the federal government under a moral obligation pledge, whereas a revenue bond is serviced by the state legislature each year.
- DA GO bond and a revenue bond are both serviced from the same debt service reserve fund held by the trustee, differing only in maturity length.
Distinguish a GO bond, backed by taxing power, from a revenue bond, backed only by project earnings. The defining line between the two municipal structures is the pledged repayment source: a GO bond rests on the issuer's taxing power and general credit, so it typically needs voter approval, whereas a revenue bond is self-supporting and repaid only from the facility's revenues.
Why A is correct: Correct. A GO bond is backed by the issuer's full faith, credit, and taxing power, while a revenue bond depends solely on the net or gross revenues produced by the financed facility.
Why B is wrong: Tempting because it names real repayment sources, but it reverses them: facility earnings back revenue bonds and ad valorem taxes back GO bonds, so the pairing is exactly backwards.
Why C is wrong: Wrong because GO bonds carry no federal guarantee; a moral obligation pledge is a limited legislative undertaking on certain revenue issues, not the defining feature of a GO bond.
Why D is wrong: Wrong because the two are distinguished by their repayment source, not maturity; a shared reserve fund does not exist across the two structures and maturity is not the defining difference.
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For a callable bond trading at a premium, which yield measure represents the yield to worst that a representative should disclose to a customer?
- AYield to maturity, because a premium bond always returns the most to the holder if held to the stated maturity date.
- BYield to call, because on a premium bond the earliest call date produces the lowest yield and therefore the most conservative figure to present.check_circle Correct
- CCurrent yield, because dividing the annual coupon by the market price gives the single most conservative return once a call is possible.
- DNominal yield, because the fixed coupon rate is the value that governs what the investor actually earns regardless of the call feature.
On a premium callable bond the yield to worst is the yield to call, since an early call lowers realised yield. When a bond is bought at a premium, the amount above par is recovered over the holding period; a call cuts that period short, accelerating the loss of premium and driving realised yield below YTM, so yield to call is the lowest yield and the required disclosure figure.
Why A is wrong: Tempting because YTM is the headline yield, but on a premium bond an early call shortens the time to recover the premium, so YTM overstates the worst outcome rather than representing it.
Why B is correct: Correct. A premium bond amortises its premium over fewer years if called early, lowering realised yield, so yield to call is the lowest and is the yield to worst that must be disclosed.
Why C is wrong: Wrong because current yield ignores the premium the holder loses at maturity or call; it is not a call-adjusted measure and cannot serve as the yield to worst.
Why D is wrong: Wrong because nominal yield is just the coupon rate on par and takes no account of the premium price or the call, so it never functions as a yield-to-worst calculation.
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What does the taxable-equivalent yield of a municipal bond measure for an investor?
- AThe yield the municipal bond would pay if its interest suddenly became fully taxable at the investor's federal marginal rate.
- BThe after-tax yield an investor keeps from a corporate bond once federal income tax has been deducted from the coupon.
- CThe yield a taxable bond would have to offer to match, after federal tax, the tax-exempt yield the municipal bond already provides.check_circle Correct
- DThe yield spread between an insured municipal bond and an uninsured municipal bond of identical maturity and rating.
Taxable-equivalent yield is the pre-tax yield a taxable bond must pay to equal a municipal's tax-free yield. Because municipal interest is generally exempt from federal income tax, comparing it fairly to a taxable bond requires grossing the exempt yield up by the investor's marginal bracket; the result is the taxable yield that would leave the investor indifferent between the two.
Why A is wrong: Tempting because it also involves tax and the bracket, but the calculation compares a tax-free municipal against a taxable alternative; it does not restate the municipal's own yield as if taxed.
Why B is wrong: Wrong because that describes a corporate bond's after-tax yield, the reverse direction; taxable-equivalent yield grosses a municipal yield up rather than netting a corporate yield down.
Why C is correct: Correct. Taxable-equivalent yield grosses up the exempt municipal yield by the investor's tax bracket, showing the pre-tax yield a taxable bond must pay to leave the investor equally well off.
Why D is wrong: Wrong because that describes an insurance credit spread; taxable-equivalent yield is about tax status versus a taxable bond, not a comparison between two municipal credits.
lock_openFree sampleObtains and Verifies Customers' Purchase and Sales Instructions and Agreements; Processes, Completes and Confirms Transactionsmedium
A customer wants an order that will be triggered only if the stock rises through a price above where it currently trades. Relative to the current market, where must a buy stop order be placed, and what type of protection does it typically provide?
- ABelow the current market, used to protect a profit on an existing long position from further decline.
- BAbove the current market, used to limit a loss on an existing short position if the stock rises.check_circle Correct
- CBelow the current market, used to buy in at a lower price after the stock has fallen through the stop.
- DAbove the current market, used to guarantee a purchase price no higher than the stop once it is elected.
A buy stop is entered above the current market and is typically used to protect a short position or capture upside momentum. A stop order rests away from the market until the stock reaches its trigger. Buy stops are set above the market because they are elected by a rising price, most often to limit losses on a short sale, while the mechanics offer no execution price guarantee once triggered.
Why A is wrong: This describes a sell stop, not a buy stop. A sell stop sits below the market to protect a long position, so both the placement and the strategy are wrong for a buy order.
Why B is correct: A buy stop is placed above the current market and is elected when the stock trades at or through the stop price, commonly to cap losses on a short sale or to buy on upside momentum.
Why C is wrong: A resting order to buy below the market at a set price is a buy limit, not a buy stop. A buy stop is never placed below the market, so this confuses the two order types.
Why D is wrong: Placement above the market is right, but a plain buy stop guarantees no price. Once triggered it becomes a market order and can fill above the stop, so the price guarantee is false.
lock_openFree sampleObtains and Verifies Customers' Purchase and Sales Instructions and Agreements; Processes, Completes and Confirms Transactionsmedium
A registered representative is explaining to a customer what happens the moment a sell stop order is triggered by the market reaching the stop price. Which statement best describes the order's behaviour at that point?
- AIt becomes a limit order at the stop price, so it fills only at the stop price or better and may go unexecuted.
- BIt is held until the stock returns to the stop price and then fills exactly at the stop price the customer set.
- CIt becomes a market order and is executed at the next available price, which may be worse than the stop price.check_circle Correct
- DIt is automatically cancelled because the trigger has been reached, and the customer must enter a fresh order.
When triggered, a plain stop order becomes a market order and fills at the next available price, not necessarily the stop price. Election of a stop occurs when the market trades at or through the stop price. At that instant the order turns into a market order, so it seeks immediate execution at whatever price is available, which in a volatile market can be materially different from the stop.
Why A is wrong: This describes a stop-limit order. A plain stop order does not convert to a limit, so tying execution to the stop price and allowing non-execution misstates a simple stop.
Why B is wrong: A stop is not held for a return to the trigger; it activates once the stop is reached. Filling exactly at the stop price is not guaranteed and this reverses how election works.
Why C is correct: A triggered stop is elected and immediately becomes a market order, filling at the next available price. In a fast-falling market that price can be below the stop, so execution is not guaranteed at the stop.
Why D is wrong: Reaching the trigger activates the order rather than cancelling it. A candidate may confuse election with cancellation, but a triggered stop proceeds to execution, not to termination.
lock_openFree sampleObtains and Verifies Customers' Purchase and Sales Instructions and Agreements; Processes, Completes and Confirms Transactionsmedium
A customer attaches a fill-or-kill (FOK) time-in-force instruction to an equity order. How does this instruction govern execution?
- AThe entire order must be executed at once or the whole order is cancelled; no partial fill is permitted.check_circle Correct
- BAs much of the order as possible is filled immediately and the unfilled balance is then cancelled.
- CThe full quantity must eventually be filled in one trade, but the order may rest open until that is possible.
- DThe order remains active until the customer cancels it, filling in as many partial lots as the market allows.
A fill-or-kill order must be executed immediately and in full or it is cancelled entirely, with no partial fill. Time-in-force instructions differ on immediacy and completeness. Fill-or-kill combines both demands: the entire quantity must trade at once, and any shortfall cancels the order, distinguishing it from IOC (partial allowed) and AON (full but not immediate).
Why A is correct: Fill-or-kill demands immediate execution of the full quantity in a single attempt. If the whole order cannot be filled at once it is cancelled outright, so partial fills are not allowed.
Why B is wrong: This describes immediate-or-cancel (IOC), which permits a partial fill. FOK differs because it rejects any outcome short of the complete quantity, so the partial-fill allowance is wrong.
Why C is wrong: Requiring the full quantity but allowing the order to rest describes all-or-none (AON). FOK requires immediacy, so letting the order stay open contradicts the kill condition.
Why D is wrong: An order that stays working across sessions until cancelled is good-til-cancelled (GTC). FOK is a single immediate attempt, so an open-ended resting order is the opposite of its intent.
lock_openFree sampleOpens Accounts After Obtaining and Evaluating Customers' Financial Profile and Investment Objectivesmedium
How does a joint account registered as joint tenants with right of survivorship (JTWROS) differ from one registered as tenants in common (TIC) when one of the two co-owners dies?
- AIn JTWROS the deceased owner's interest passes to their estate, while in TIC the interest passes automatically to the surviving owner.
- BIn both JTWROS and TIC the deceased owner's interest passes to the surviving owner, so the two registrations are functionally identical on death.
- CIn JTWROS the deceased owner's interest passes automatically to the surviving owner, while in TIC that interest passes to the deceased owner's estate.check_circle Correct
- DIn both JTWROS and TIC the deceased owner's interest passes into that owner's estate, so probate applies equally to each registration.
JTWROS passes a deceased co-owner's interest to the survivor by survivorship, whereas tenants in common passes it to the deceased's estate. The distinction turns on the right of survivorship: JTWROS vests the whole account in the survivor automatically, while a tenant in common holds a divisible fractional interest that is disposed of through the deceased owner's estate.
Why A is wrong: This reverses the two registrations; survivorship is the defining feature of JTWROS, not of tenants in common, so the descriptions are swapped.
Why B is wrong: It is tempting because both are joint registrations, but only JTWROS carries survivorship; treating them as identical ignores the estate transfer that defines TIC.
Why C is correct: Right of survivorship means the survivor takes the whole account by operation of law, whereas a tenant in common's fractional share flows into their estate for distribution under the will.
Why D is wrong: This correctly describes TIC but wrongly applies estate transfer to JTWROS, whose survivorship feature bypasses probate for the deceased's share.
lock_openFree sampleOpens Accounts After Obtaining and Evaluating Customers' Financial Profile and Investment Objectivesmedium
Under FINRA Rule 4512, which signature requirement applies when a firm opens an ordinary cash account for a retail customer?
- AThe account record must carry the signature of the associated person who introduced the account and the signature or approval of a principal, but the customer's own signature is not required to open a cash account.check_circle Correct
- BThe customer must personally sign the new account form before any transaction is entered, and no principal approval is needed until the first trade settles.
- COnly a principal signature is required, and the identity of the associated person handling the account need not appear on the record.
- DNo signatures of any kind are required because the account record is purely informational and carries no supervisory function.
FINRA Rule 4512 requires the associated person's signature and principal approval on the account record, but not a customer signature to open a cash account. The rule frames the account record as a supervisory document: it must name and be signed by the associated person and be approved by a principal, whereas a retail customer need not sign to open an ordinary cash account.
Why A is correct: Rule 4512 requires the record to identify and be signed by the associated person responsible for the account and to show principal approval, while a customer signature is not a condition of opening a cash account.
Why B is wrong: This overstates the customer's role and understates the principal's; a customer signature is not required to open a cash account, and principal approval is required, not deferred to settlement.
Why C is wrong: Principal approval is indeed required, but the rule also requires the account record to identify the associated person, so omitting that person is a compliance gap.
Why D is wrong: This ignores the supervisory purpose of the record; the associated person's signature and principal approval are both required under the rule.
lock_openFree sampleOpens Accounts After Obtaining and Evaluating Customers' Financial Profile and Investment Objectivesmedium
Which statement best describes a custodial account opened under the Uniform Transfers to Minors Act (UTMA)?
- AThe account may name several minors and several custodians jointly, spreading control and beneficial ownership across all of them.
- BGifts placed in the account remain revocable, so the donor may reclaim the securities before the minor reaches the age of majority.
- CThe custodian may trade on margin and pledge the account's securities to pursue higher returns for the minor.
- DOne adult custodian controls the account for the benefit of one minor, and the gifts are irrevocable with the securities owned by the minor.check_circle Correct
A UTMA custodial account has one custodian and one minor, and the transferred securities are an irrevocable gift owned by the minor. Under UTMA the custodian holds legal control only until the minor reaches majority, but ownership vests in the minor at the time of the irrevocable gift, which is why the account cannot use margin and cannot be reclaimed by the donor.
Why A is wrong: This is tempting by analogy to joint accounts, but a custodial account has exactly one minor and one custodian; the one-minor, one-custodian structure is a defining limit.
Why B is wrong: It sounds plausible because the custodian retains control, but gifts to a custodial account are irrevocable; the property belongs to the minor once transferred.
Why C is wrong: Margin and hypothecation are tempting as custodial powers, but a custodial account must be a cash account managed prudently, so leverage is not permitted.
Why D is correct: A UTMA account pairs a single custodian with a single minor beneficiary; the transfer is an irrevocable gift, so beneficial ownership and the tax liability sit with the minor.
lock_openFree sampleSeeks Business for the Broker-Dealer from Customers and Potential Customersmedium
Under FINRA Rule 2210, which requirement generally applies to a retail communication before a member firm uses it?
- AA registered principal must approve it before the earlier of its use or filing with FINRA, unless a stated exception applies.check_circle Correct
- BIt must be filed with and approved by the SEC's Division of Trading and Markets before the firm may first use it.
- CIt requires no supervisory review at all because retail communications are exempt from the content standards.
- DIt must be pre-cleared by the MSRB whenever the communication mentions any municipal or corporate security.
A registered principal must approve a retail communication before the earlier of its use or filing, absent an exception. Rule 2210(b) places prior principal approval at the centre of retail communication supervision, requiring sign-off before the piece is used or filed so the firm catches misleading content before it reaches investors.
Why A is correct: Rule 2210(b) requires an appropriately qualified registered principal to approve each retail communication before the earlier of its use or filing, subject to limited exceptions.
Why B is wrong: Filing, where required, goes to FINRA's Advertising Regulation Department, not the SEC, and prior SEC approval of communications is not the mechanism Rule 2210 uses.
Why C is wrong: The opposite is true: retail communications are the most heavily supervised category and are fully subject to the content standards.
Why D is wrong: The MSRB does not pre-clear firm communications; municipal advertising has its own MSRB rules, but Rule 2210 approval runs through a member's registered principal.
lock_openFree sampleSeeks Business for the Broker-Dealer from Customers and Potential Customersmedium
Under FINRA Rule 2210, what distinguishes 'correspondence' from a 'retail communication'?
- ACorrespondence is any oral communication a representative has with a customer, while a retail communication is any written communication distributed to the general public.
- BCorrespondence is distributed exclusively to institutional investors, while a retail communication is directed at 25 or fewer retail investors in a 30-day period.
- CCorrespondence is limited to 25 or fewer retail investors within any 12-month period, while a retail communication exceeds that count in the same window.
- DCorrespondence is any written communication distributed to 25 or fewer retail investors within any 30 calendar-day period, while a retail communication reaches more than 25 retail investors in that period.check_circle Correct
Correspondence reaches 25 or fewer retail investors in any 30-day period; a retail communication reaches more than 25. Rule 2210 sorts written communications by audience count within a rolling 30 calendar-day window, so a piece sent to 25 or fewer retail investors is correspondence and one sent to more is a retail communication, which triggers stricter approval and filing duties.
Why A is wrong: Tempting because 'correspondence' sounds like personal contact, but Rule 2210 categories cover written (including electronic) communications, not oral conversations.
Why B is wrong: This describes an institutional communication, not correspondence, and misstates the retail category, which involves more than 25 retail investors.
Why C is wrong: The count is right but the measuring window is wrong: Rule 2210 uses a rolling 30 calendar-day period, not a 12-month period.
Why D is correct: Rule 2210 defines the two categories purely by how many retail investors a written communication reaches in any 30 calendar-day period, with 25 as the dividing line.
lock_openFree sampleSeeks Business for the Broker-Dealer from Customers and Potential Customersmedium
Which statement best describes a content standard that FINRA Rule 2210 imposes on member communications with the public?
- AA firm may project a specific future rate of return as long as the projection is clearly labelled as an estimate.
- BA communication must be fair and balanced, give a sound basis for evaluating the facts, and avoid false, exaggerated, or promissory statements.check_circle Correct
- CA firm may guarantee a customer against loss provided the guarantee is approved by a qualified principal first.
- DA firm may omit the material risks of a product whenever the communication is aimed at experienced investors.
All member communications must be fair and balanced with no false, exaggerated, misleading, or promissory statements. Rule 2210(d) sets a uniform content bar: communications must present a sound basis for evaluation and may not omit material facts or promise results, which is why forecasts, loss guarantees, and risk omissions all fail the standard.
Why A is wrong: Labelling does not cure a forecast: Rule 2210 bars predictions or projections of specific investment performance for most products.
Why B is correct: This restates the core Rule 2210(d) content standards, which demand balance, a sound factual basis, and no misleading or promissory claims.
Why C is wrong: Principal approval cannot authorise a false or promissory claim; guaranteeing against loss is precisely the kind of statement the rule prohibits.
Why D is wrong: Investor sophistication does not license omitting material facts; the rule requires a sound basis for evaluating the product regardless of audience.
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