Series 7 Practice Exam


The Series 7 Exam is required for individuals who are entering the securities industry. You must pass this exam to qualify for the solicitation, purchase, and/or sale of all securities products. The test is administered by the Financial Industry Regulatory Authority (FINRA). Our free Series 7 practice exam is great for exam prep. Try these Series 7 exam questions to make sure you’re prepared.

Series 7 Questions

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Question 1
Which of the following is not a type of economic indicator?
A
Leading.
B
Lagged.
C
Equitable.
D
Coincident.
Question 1 Explanation: 
Leading economic indicators are those which change before the economy changes (such as the stock market). A lagged economic indicator doesn't change direction until a few quarters after the economy does (such as unemployment). A coincident economic indicator is one that moves at the same time the economy does (such as GDP).
Question 2
Which Act created the SEC?
A
Securities Act of 1933
B
Securities Exchange Act of 1934
C
Investment Company Act of 1940
D
Securities Exchange Commission Act of 1931
Question 2 Explanation: 
The Securities Exchange Act of 1934 governs the secondary trading of securities and created the SEC.
Question 3
NASDAQ Market Makers are required to report each trade within how many seconds of execution?
A
90
B
3
C
30
D
No requirement to report.
Question 3 Explanation: 
NASDAQ Real-Time Trade Reporting rules require that Market Makers (and non Market-Makers in certain cases) report each trade within 90 seconds of execution.
Question 4
What is the maximum loss with a long straddle?
A
Unlimited.
B
Strike Price of Long Call + Net Premium Paid.
C
Net Premium Paid + Commissions Paid.
D
Strike Price of Long Put - Net Premium Paid.
Question 4 Explanation: 
The maximum loss for a long straddle will occur when the underlying stock price on the expiration date is trading at the strike price of the options bought. When trading at this price, both options expire worthless and the trader loses the entire amount he paid for the options (net premium paid) plus the amount of any commissions.
Question 5
Which of these calls would have the largest premium?
A
JKL October 25 call.
B
JKL October 30 call.
C
JKL October 35 call.
D
JKL October 40 call.
Question 5 Explanation: 
The call with the lowest strike price will be the closest to being in-the-money (or the furthest in-the-money if it already trades above the strike price). So the call with the lowest strike price will have the highest premium.
Question 6
AAA is trading at $55. Mr. Jones buys a May 60 call at $1 and sells a May 50 call at $7. What options strategy has he implemented?
A
Bull Call Spread.
B
Bear Call Spread.
C
Straddle.
D
Bull Put Spread.
Question 6 Explanation: 
This is the bear call spread, where the investor is moderately bearish and buys call options of a specific strike price while selling the same number of call options of a lower strike price (options are on the same underlying security and have the same expiration month).
Question 7
This type of underwriting contract is safest for the issuer, but also the most expensive.
A
Firm Commitment.
B
Best Efforts.
C
All-Or-None.
D
Pari Passu.
Question 7 Explanation: 
With a firm commitment contract the underwriter will guarantee the sale of the issue at the price that has been agreed upon.
Question 8
Ms. Johnson sees that CBA is trading at $53. She buys a December 50 put for $150 and she writes a December 55 put for $400. The stock closes at $59 on the expiration date of the options. What is her profit or loss?
A
$400 gain.
B
$150 loss.
C
$550 loss.
D
$250 gain.
Question 8 Explanation: 
This was a bull put spread. She received a net credit of $250 when she entered the position. Both put options are worthless at expiration.
Question 9
A red herring must include all of the following EXCEPT:
A
he purpose of the issue.
B
A copy of the underwriting agreement.
C
The price and quantity of the securities offered.
D
Copies of the issuer's articles of incorporation.
Question 9 Explanation: 
A red herring prospectus is a prospectus that does not include complete information on price and quantity. That information will be in the final prospectus.
Question 10
What percentage of their income are REITs required to distribute to their investors?
A
90%
B
10%
C
100%
D
No requirement.
Question 10 Explanation: 
To qualify as a REIT a company must distribute 90% or more of their taxable income as dividends to shareholders.
Question 11
Renee sells 500 shares of SJM short at a price of $55. What is her initial margin requirement?
A
$6,875
B
$27,500
C
$34,375
D
$41,250
Question 11 Explanation: 
Short sale accounts must have 150% of the sale amount when the sale is initiated. So she will need the $27,500 proceeds from the short sale along with an additional $13,750.
Question 12
Your client is selling restricted shares of a stock that is quoted on Nasdaq. One of the conditions of their Rule 144 sale is that the amount of stock they sell in a 3-month period cannot exceed the greater of 1% of the outstanding shares of the same class being sold or:
A
The highest weekly trading volume during the six weeks preceding the filing.
B
The average daily trading volume during the week after the filing.
C
The average daily trading volume during the week preceding the filing.
D
The average weekly trading volume during the four weeks preceding the filing.
Question 12 Explanation: 
Rule 144 applies to the sale of restricted and control securities. There are 5 conditions to sell under the rule, including this trading volume condition.
Question 13
Which of the following is NOT true of the Dow Jones Industrial Average?
A
There are 30 stocks in the index.
B
It's an index that tracks 30 industrial stocks.
C
It's a price-weighted index.
D
It's a closely watched benchmark of stock market activity.
Question 13 Explanation: 
The term "industrial" is historical in nature. The index now contains many companies that are not industrials. It is price-weighted, meaning that each stock makes up a fraction of the index that is proportional to its price.
Question 14
Holders of this type of preferred stock have the opportunity to receive additional dividends if the company attains certain predetermined financial goals.
A
Cumulative preferred.
B
Participating preferred.
C
Callable preferred.
D
Convertible preferred.
Question 14 Explanation: 
With participating preferred stock, investors receive an additional dividend if predetermined goals are achieved. These goals could relate to earnings, sales, or profitability.
Question 15
A municipality issues 30,000 bonds at an offering price of $1,000. The syndicate manager's fee is $1.00 per bond. The selling concession is $4.50 per bond and the total takedown is $7.75 per bond. How much will the issuer receive per bond?
A
$986.75
B
$991.25
C
$992.25
D
$1,000.00
Question 15 Explanation: 
Total takedown consists of the selling concession plus additional takedown that the underwriting group gets for assuming risk. The total spread is the total takedown of $7.75 plus the $1.00 manager's fee, which come to $8.75 per bond. With a $1,000 offering price minus the $8.75 underwriting spread, the issuer will receive $991.25 per bond.
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About the Series 7 Exam:
This exam consists of 250 multiple choice questions, and is given in two parts with 125 questions. You are given 3 hours to complete each part. The exam is very challenging, so make sure you do plenty of Series 7 exam prep, and be sure to work through our Series 7 practice exam along with plenty of additional practice questions.