Finra Series 7 Examination: General
Securities Representative Exam
Questions And Correct Answers (Verified
Answers) Plus Rationales 2026 Q&A |
Instant Download Pdf
1. A customer wishes to open a cash account. Which of the following
signatures is required on the new account form? A) The customer's
signature B) The principal's signature C) The registered representative's
signature D) The branch manager's signature Rationale: While the principal
must approve the account, FINRA rules require that the registered
representative responsible for the account sign the new account form. The
customer's signature is not required for a cash account, and the principal's
signature is for approval, not account opening initiation.
2. An investor is concerned about purchasing power risk. Which of the
following securities would be most suitable to protect against this risk? A)
Treasury Inflation-Protected Securities (TIPS) B) Corporate bonds C)
Preferred stock D) Municipal bonds Rationale: Purchasing power risk is the
risk that inflation will erode the value of an investment. TIPS are designed
specifically to adjust their principal value based on the Consumer Price
Index, thereby protecting the investor's purchasing power.
3. A corporation has issued a 6% bond at par. The bond is callable in 5 years at
105. What is the yield to call (YTC) if the bond is called at the first call date?
A) 6.0% B) 6.8% C) 7.2% D) 5.5% Rationale: When a bond is called at a
premium, the yield to call is higher than the nominal yield (coupon)
because the investor receives the premium above par. The calculation
, involves the annual interest and the amortization of the premium over the
period to the call date.
4. Under Regulation T, if a customer purchases stock in a margin account,
when must payment be made? A) Trade date B) Trade date + 1 C) Trade
date + 4 D) Trade date + 5 Rationale: Regulation T requires that payment
for purchases in a margin account be made no later than two business
days after the regular-way settlement date (T+2 + 2 = T+4).
5. An investor buys an XYZ June 50 call for a premium of 3. What is the break-
even point for the investor? A) 47 B) 53 C) 50 D) 56 Rationale: For a call
option, the break-even point is the strike price plus the premium paid (50 +
3 = 53). The investor needs the stock price to rise above 53 to profit.
6. Which of the following is considered an exempt security under the
Securities Act of 1933? A) Municipal bond B) Corporate bond C) Preferred
stock D) Variable annuity Rationale: Municipal securities are explicitly
exempt from the registration requirements of the Securities Act of 1933.
Corporate bonds, preferred stock, and variable annuities require
registration.
7. A registered representative is recommending a limited partnership. Which
of the following is the most important factor regarding suitability? A)
Liquidity B) Tax benefit C) Capital appreciation D) Yield Rationale: Limited
partnerships (direct participation programs) are typically sought for their
tax advantages (pass-through of losses and deductions). Investors must
have a high net worth and the ability to forgo liquidity.
8. What is the primary purpose of the Securities Investor Protection
Corporation (SIPC)? A) To guarantee the performance of all securities B) To
protect customers in the event of broker-dealer insolvency C) To regulate
the issuance of new securities D) To insure bank deposits Rationale: SIPC is
a non-profit organization that protects investors against the loss of cash
and securities held at a brokerage firm if the firm fails (becomes
insolvent). It does not protect against market losses.
, 9. An investor holds a municipal bond with a 5% coupon. The investor is in the
30% tax bracket. What is the taxable equivalent yield? A) 5.0% B) 6.5% C)
7.14% D) 3.5% Rationale: The taxable equivalent yield is calculated as:
Tax-Free Yield / (100% - Tax Bracket). 5% / (1 - 0.30) = 5% / 0.70 = 7.14%.
10.A "red herring" refers to: A) A finalized prospectus B) A preliminary
prospectus C) An announcement of a bankruptcy D) A summary of a mutual
fund’s performance Rationale: A preliminary prospectus, often called a red
herring due to the red ink disclaimer on the cover, is used during the
cooling-off period to solicit indications of interest before the registration
statement is effective.
11.Which of the following orders must be adjusted for cash dividends on the
ex-date? A) Market orders B) Stop orders C) Buy limit orders D) Fill-or-kill
orders Rationale: Orders entered at or below the market (buy limits, sell
stops) are reduced by the amount of the cash dividend on the morning of
the ex-date, as the stock price typically drops by the dividend amount.
12.A customer is short 100 shares of ABC at 50 and buys 1 ABC 50 call at 2.
What is the maximum loss? A) $500 B) $5,000 C) Unlimited D) $200
Rationale: A short sale has unlimited risk because the stock price can rise
indefinitely. By buying a call, the investor is "hedged," but the call only
protects against a rise in the stock price; if the stock price does not move,
the investor loses the premium. The short position itself is technically
unlimited.
13.Which of the following is true regarding mutual fund Class B shares? A)
They have no sales charge. B) They have a high front-end load. C) They have
a contingent deferred sales charge (CDSC) that declines over time. D) They
are the most suitable for large, short-term investments. Rationale: Class B
shares typically impose a back-end load (CDSC) that disappears after a
certain number of years. They often have higher 12b-1 fees than Class A
shares.
Securities Representative Exam
Questions And Correct Answers (Verified
Answers) Plus Rationales 2026 Q&A |
Instant Download Pdf
1. A customer wishes to open a cash account. Which of the following
signatures is required on the new account form? A) The customer's
signature B) The principal's signature C) The registered representative's
signature D) The branch manager's signature Rationale: While the principal
must approve the account, FINRA rules require that the registered
representative responsible for the account sign the new account form. The
customer's signature is not required for a cash account, and the principal's
signature is for approval, not account opening initiation.
2. An investor is concerned about purchasing power risk. Which of the
following securities would be most suitable to protect against this risk? A)
Treasury Inflation-Protected Securities (TIPS) B) Corporate bonds C)
Preferred stock D) Municipal bonds Rationale: Purchasing power risk is the
risk that inflation will erode the value of an investment. TIPS are designed
specifically to adjust their principal value based on the Consumer Price
Index, thereby protecting the investor's purchasing power.
3. A corporation has issued a 6% bond at par. The bond is callable in 5 years at
105. What is the yield to call (YTC) if the bond is called at the first call date?
A) 6.0% B) 6.8% C) 7.2% D) 5.5% Rationale: When a bond is called at a
premium, the yield to call is higher than the nominal yield (coupon)
because the investor receives the premium above par. The calculation
, involves the annual interest and the amortization of the premium over the
period to the call date.
4. Under Regulation T, if a customer purchases stock in a margin account,
when must payment be made? A) Trade date B) Trade date + 1 C) Trade
date + 4 D) Trade date + 5 Rationale: Regulation T requires that payment
for purchases in a margin account be made no later than two business
days after the regular-way settlement date (T+2 + 2 = T+4).
5. An investor buys an XYZ June 50 call for a premium of 3. What is the break-
even point for the investor? A) 47 B) 53 C) 50 D) 56 Rationale: For a call
option, the break-even point is the strike price plus the premium paid (50 +
3 = 53). The investor needs the stock price to rise above 53 to profit.
6. Which of the following is considered an exempt security under the
Securities Act of 1933? A) Municipal bond B) Corporate bond C) Preferred
stock D) Variable annuity Rationale: Municipal securities are explicitly
exempt from the registration requirements of the Securities Act of 1933.
Corporate bonds, preferred stock, and variable annuities require
registration.
7. A registered representative is recommending a limited partnership. Which
of the following is the most important factor regarding suitability? A)
Liquidity B) Tax benefit C) Capital appreciation D) Yield Rationale: Limited
partnerships (direct participation programs) are typically sought for their
tax advantages (pass-through of losses and deductions). Investors must
have a high net worth and the ability to forgo liquidity.
8. What is the primary purpose of the Securities Investor Protection
Corporation (SIPC)? A) To guarantee the performance of all securities B) To
protect customers in the event of broker-dealer insolvency C) To regulate
the issuance of new securities D) To insure bank deposits Rationale: SIPC is
a non-profit organization that protects investors against the loss of cash
and securities held at a brokerage firm if the firm fails (becomes
insolvent). It does not protect against market losses.
, 9. An investor holds a municipal bond with a 5% coupon. The investor is in the
30% tax bracket. What is the taxable equivalent yield? A) 5.0% B) 6.5% C)
7.14% D) 3.5% Rationale: The taxable equivalent yield is calculated as:
Tax-Free Yield / (100% - Tax Bracket). 5% / (1 - 0.30) = 5% / 0.70 = 7.14%.
10.A "red herring" refers to: A) A finalized prospectus B) A preliminary
prospectus C) An announcement of a bankruptcy D) A summary of a mutual
fund’s performance Rationale: A preliminary prospectus, often called a red
herring due to the red ink disclaimer on the cover, is used during the
cooling-off period to solicit indications of interest before the registration
statement is effective.
11.Which of the following orders must be adjusted for cash dividends on the
ex-date? A) Market orders B) Stop orders C) Buy limit orders D) Fill-or-kill
orders Rationale: Orders entered at or below the market (buy limits, sell
stops) are reduced by the amount of the cash dividend on the morning of
the ex-date, as the stock price typically drops by the dividend amount.
12.A customer is short 100 shares of ABC at 50 and buys 1 ABC 50 call at 2.
What is the maximum loss? A) $500 B) $5,000 C) Unlimited D) $200
Rationale: A short sale has unlimited risk because the stock price can rise
indefinitely. By buying a call, the investor is "hedged," but the call only
protects against a rise in the stock price; if the stock price does not move,
the investor loses the premium. The short position itself is technically
unlimited.
13.Which of the following is true regarding mutual fund Class B shares? A)
They have no sales charge. B) They have a high front-end load. C) They have
a contingent deferred sales charge (CDSC) that declines over time. D) They
are the most suitable for large, short-term investments. Rationale: Class B
shares typically impose a back-end load (CDSC) that disappears after a
certain number of years. They often have higher 12b-1 fees than Class A
shares.
