SERIES 7 EXAM PRACTICE QUESTIONS AND CORRECT ANSWERS (VERIFIED ANSWERS) PLUS RATIONALES
2026 Q&A | INSTANT DOWNLOAD PDF
CORE DOMAINS
Equity Securities
Debt Securities
Municipal Securities
Investment Company Products (Mutual Funds, ETFs, REITs, Variable Products)
Options and Derivative Strategies
Direct Participation Programs (DPPs) and Real Estate
Trading, Settlement, and Margin Accounts
Customer Accounts and Regulatory Framework (SEC, FINRA, MSRB)
Retirement Plans and Tax-Advantaged Products
Professional Conduct, Ethics, and Suitability
Introduction
This assessment is designed to prepare candidates for the FINRA Series 7 General Securities Representative
Examination. It measures core knowledge required to function as a registered representative, including solicitation,
purchase, and sale of securities, regulatory compliance, and suitability obligations. Questions are structured as
multiple‑choice and scenario‑based items that mirror the difficulty and style of the actual exam. Emphasis is
placed on real‑world application, decision‑making under regulatory constraints, and protection of customer
interests. Mastery of this content indicates readiness to recommend securities, execute trades, and maintain ethical
standards in a brokerage environment.
,SECTION ONE – QUESTIONS 1 THROUGH 100
Question 1
A customer buys 100 shares of XYZ at
48pershareandsimultaneouslywritesacoveredcallwithastrikepriceof 55, receiving a $2 premium. What is
the customer’s breakeven point?
A. 46B.48
C. 50D.53
🟢A
🔴 RATIONALE: In a covered call, the breakeven is the purchase price minus the premium received. 48−2 =
46.T hecallgivesthebuyertherighttobuyat55, but the seller keeps the premium regardless.
Question 2
Under the Securities Exchange Act of 1934, which of the following transactions is subject to the short‑swing
profit rule (Section 16(b))?
A. A retail customer sells shares of ABC after holding them for three months
B. A director of a publicly traded company buys and sells shares within a six‑month period
C. An institutional investor holds 12% of a company’s stock for two years
D. A market maker sells short in the course of ordinary trading
🟢B
,🔴 RATIONALE: Section 16(b) applies to directors, officers, and 10% shareholders of a publicly traded company.
Any purchase and sale (or sale and purchase) within a six‑month period results in disgorgement of profits.
Question 3
A municipal bond is callable at 102 in five years. The bond is currently trading at 108. Which yield should an
investor use to compare this bond to a non‑callable corporate bond?
A. Nominal yield
B. Current yield
C. Yield to maturity (YTM)
D. Yield to worst (YTW)
🟢D
🔴 RATIONALE: Yield to worst considers the lowest possible yield that can be received on a bond without the
issuer actually defaulting. Since the bond is trading above the call price, the yield to call (102) is lower than YTM,
so YTW is the relevant comparison.
Question 4
A registered representative receives an unsolicited order from a customer to buy 1,000 shares of a low‑priced,
thinly traded OTC security. Before executing the order, the representative MUST:
A. Determine if the security is eligible for margin trading
B. Obtain written approval from a principal due to potential manipulation concerns
C. Verify that the customer has sufficient funds in the account
D. Provide the customer with a prospectus
🟢C
, 🔴 RATIONALE: FINRA rules require that before executing a transaction, a representative must have reasonable
grounds to believe that the customer can pay for the purchase. Unsolicited status does not remove the
obligation to verify funds.
Question 5
An investor purchases a variable annuity with a fixed guaranteed rate floor and an upside linked to an equity
index. This product is best described as:
A. A mutual fund wrap account
B. A hybrid annuity with both fixed and variable components
C. A real estate investment trust (REIT)
D. A unit investment trust (UIT)
🟢B
🔴 RATIONALE: Hybrid annuities (often called fixed‑index or equity‑indexed annuities) provide a guaranteed
minimum return plus additional returns based on an index’s performance. This differs from a pure variable
annuity which has no guaranteed floor.
Question 6
Which of the following municipal bonds is most likely to be subject to the alternative minimum tax (AMT)?
A. General obligation bond for a new school
B. Revenue bond for a toll road
C. Private activity bond for a sports stadium
D. Tax‑anticipation note
🟢C
2026 Q&A | INSTANT DOWNLOAD PDF
CORE DOMAINS
Equity Securities
Debt Securities
Municipal Securities
Investment Company Products (Mutual Funds, ETFs, REITs, Variable Products)
Options and Derivative Strategies
Direct Participation Programs (DPPs) and Real Estate
Trading, Settlement, and Margin Accounts
Customer Accounts and Regulatory Framework (SEC, FINRA, MSRB)
Retirement Plans and Tax-Advantaged Products
Professional Conduct, Ethics, and Suitability
Introduction
This assessment is designed to prepare candidates for the FINRA Series 7 General Securities Representative
Examination. It measures core knowledge required to function as a registered representative, including solicitation,
purchase, and sale of securities, regulatory compliance, and suitability obligations. Questions are structured as
multiple‑choice and scenario‑based items that mirror the difficulty and style of the actual exam. Emphasis is
placed on real‑world application, decision‑making under regulatory constraints, and protection of customer
interests. Mastery of this content indicates readiness to recommend securities, execute trades, and maintain ethical
standards in a brokerage environment.
,SECTION ONE – QUESTIONS 1 THROUGH 100
Question 1
A customer buys 100 shares of XYZ at
48pershareandsimultaneouslywritesacoveredcallwithastrikepriceof 55, receiving a $2 premium. What is
the customer’s breakeven point?
A. 46B.48
C. 50D.53
🟢A
🔴 RATIONALE: In a covered call, the breakeven is the purchase price minus the premium received. 48−2 =
46.T hecallgivesthebuyertherighttobuyat55, but the seller keeps the premium regardless.
Question 2
Under the Securities Exchange Act of 1934, which of the following transactions is subject to the short‑swing
profit rule (Section 16(b))?
A. A retail customer sells shares of ABC after holding them for three months
B. A director of a publicly traded company buys and sells shares within a six‑month period
C. An institutional investor holds 12% of a company’s stock for two years
D. A market maker sells short in the course of ordinary trading
🟢B
,🔴 RATIONALE: Section 16(b) applies to directors, officers, and 10% shareholders of a publicly traded company.
Any purchase and sale (or sale and purchase) within a six‑month period results in disgorgement of profits.
Question 3
A municipal bond is callable at 102 in five years. The bond is currently trading at 108. Which yield should an
investor use to compare this bond to a non‑callable corporate bond?
A. Nominal yield
B. Current yield
C. Yield to maturity (YTM)
D. Yield to worst (YTW)
🟢D
🔴 RATIONALE: Yield to worst considers the lowest possible yield that can be received on a bond without the
issuer actually defaulting. Since the bond is trading above the call price, the yield to call (102) is lower than YTM,
so YTW is the relevant comparison.
Question 4
A registered representative receives an unsolicited order from a customer to buy 1,000 shares of a low‑priced,
thinly traded OTC security. Before executing the order, the representative MUST:
A. Determine if the security is eligible for margin trading
B. Obtain written approval from a principal due to potential manipulation concerns
C. Verify that the customer has sufficient funds in the account
D. Provide the customer with a prospectus
🟢C
, 🔴 RATIONALE: FINRA rules require that before executing a transaction, a representative must have reasonable
grounds to believe that the customer can pay for the purchase. Unsolicited status does not remove the
obligation to verify funds.
Question 5
An investor purchases a variable annuity with a fixed guaranteed rate floor and an upside linked to an equity
index. This product is best described as:
A. A mutual fund wrap account
B. A hybrid annuity with both fixed and variable components
C. A real estate investment trust (REIT)
D. A unit investment trust (UIT)
🟢B
🔴 RATIONALE: Hybrid annuities (often called fixed‑index or equity‑indexed annuities) provide a guaranteed
minimum return plus additional returns based on an index’s performance. This differs from a pure variable
annuity which has no guaranteed floor.
Question 6
Which of the following municipal bonds is most likely to be subject to the alternative minimum tax (AMT)?
A. General obligation bond for a new school
B. Revenue bond for a toll road
C. Private activity bond for a sports stadium
D. Tax‑anticipation note
🟢C
