Series 7 Practice Questions (2026) — Free Sample Questions with Answers

Answer: D

1. Underwriting fee = spread − manager's fee − concession = $1.50 − $0.15 − $1.00 = $0.35.
2. Syndicate member selling its own allotment earns underwriting fee + concession = $0.35 + $1.00 = $1.35 per share.
3. Total = $1.35 × 5,000 = $6,750.

$7,500: Wrong. This is the full $1.50 spread; the manager's fee goes only to the managing underwriter.

$1,750: Wrong. This is the underwriting fee alone; the member also sold the shares, so it earns the concession too.

$5,000: Wrong. This is the concession alone, which is what a selling group member would earn; the syndicate member also earns the underwriting fee.

$6,750: Correct. A syndicate member selling its own allotment earns the underwriting fee ($0.35) plus the selling concession ($1.00) = $1.35 per share × 5,000.

Spread = manager's fee + underwriting fee + selling concession; a syndicate member earns the fee plus concession, a selling group member earns the concession, and a non-member dealer earns the reallowance.

Answer: A

The Care Obligation's quantitative (excessive trading) requirement: Correct. Reg BI's Care Obligation, like FINRA Rule 2111's quantitative suitability, requires that a series of recommended trades not be excessive when taken together, even if each is reasonable alone.

The reasonable-basis requirement: Wrong. Reasonable basis concerns whether a product or strategy is suitable for at least some investors; the issue here is the volume of trading.

The customer-specific requirement: Wrong. Each trade was appropriate for this customer on its own; the problem is the combined frequency of trades.

The Disclosure Obligation: Wrong. Disclosing commissions does not cure excessive trading; the violation is in the pattern of recommendations.

Three care components under Reg BI and Rule 2111: reasonable basis (the product), customer-specific (this customer), quantitative (the series of trades taken together).

Answer: B

1. Mandatory withholding on an eligible rollover distribution paid to the participant = 20% × $100,000 = $20,000; check = $80,000.
2. To avoid tax, the full $100,000 must be deposited in an IRA within 60 days: $80,000 check + $20,000 from other funds.
3. The $20,000 withheld is claimed back as a credit when he files his tax return.

Deposit the $80,000 within 60 days; the $20,000 withheld is not a distribution: Wrong. Any amount not rolled over, including the $20,000 withheld, is a taxable distribution and, at age 50, subject to the 10% penalty.

Deposit $100,000 in an IRA within 60 days, adding $20,000 from other funds: Correct. To roll over the full balance he must make up the 20% withheld within 60 days; the $20,000 withholding is then recovered as a credit on his tax return.

Deposit $80,000 within 30 days, and the withholding is refunded: Wrong. The rollover window is 60 days, and depositing only $80,000 leaves $20,000 taxable.

Nothing more; the withholding satisfies his tax on the distribution: Wrong. Withholding is only a prepayment; without a rollover the whole $100,000 is taxable and penalized.

Indirect rollovers from employer plans have 20% mandatory withholding; roll the full pre-withholding amount within 60 days or the shortfall is taxed (and penalized before 59½). A direct rollover avoids withholding.

Answer: D

1. Earnings = $90,000 − $60,000 = $30,000.
2. LIFO: the first $30,000 withdrawn is earnings (ordinary income); the remaining $10,000 is return of basis.
3. Income tax = $30,000 × 24% = $7,200.
4. Penalty (under age 59½) = 10% × $30,000 = $3,000.
5. Total = $7,200 + $3,000 = $10,200.

$13,600: This taxes and penalizes the entire $40,000. The $10,000 in excess of earnings is a return of his after-tax basis.

$4,533: This uses an exclusion ratio (one-third of the withdrawal taxable). Exclusion ratios apply to annuitized payments, not to lump-sum withdrawals.

$7,200: This taxes the $30,000 of earnings correctly but leaves out the 10% penalty that applies before age 59½.

$10,200: Correct. Under LIFO the $30,000 of earnings comes out first and is taxed as ordinary income ($7,200 at 24%), plus a 10% penalty on that $30,000 ($3,000); the other $10,000 is a tax-free return of basis.

Nonqualified annuity withdrawals are LIFO: earnings come out first as ordinary income, with a 10% penalty on the taxable part before age 59½.

Answer: B

Class A, because it has the lowest 12b-1 fee: The 5.50% front-end load costs far more than the 12b-1 savings over only 2 years; Class A suits larger, long-term purchases.

Class C, because a short horizon favors a level load: Correct. About 2 years of 1.00% 12b-1 fees with no CDSC after year 1 costs less than a 5.50% front-end load or a Class B CDSC. Under Reg BI the representative should also disclose these cost differences.

Class B, because there is no sales charge at purchase: Redeeming in year 2 or 3 would trigger a CDSC of about 3% to 4% on top of 1.00% annual 12b-1 fees.

Any class, because total costs equalize over every holding period: Share-class costs differ sharply by holding period and amount; that is why share-class selection is a suitability decision.

Short horizons generally favor Class C (level load); large or long-term purchases generally favor Class A, especially at breakpoints. Material cost differences must be disclosed under Reg BI.

Answer: B

1. Dollar sales charge = POP − NAV = $10.00 − $9.40 = $0.60.
2. Sales charge % = $0.60 ÷ POP of $10.00 = 0.06 = 6.0%.

0.6%: This reports the $0.60 dollar difference as if it were a percentage; the dollar load must be divided by the POP.

6.0%: Correct. Sales charge % = (POP − NAV) ÷ POP = $0.60 ÷ $10.00 = 6.0%. FINRA Rule 2341 states sales charges as a percentage of the offering price.

6.38%: This divides the $0.60 load by the NAV ($9.40). Sales charges are expressed as a percentage of the POP, not the NAV.

8.5%: This is the maximum front-end charge Rule 2341 permits, not the charge this fund actually imposes.

Sales charge % = (POP − NAV) ÷ POP; working backward, POP = NAV ÷ (1 − sales charge %).

Answer: C

1. Total premium = 4 + 3 = 7.
2. Upside breakeven = 50 + 7 = 57.
3. Downside breakeven = 50 − 7 = 43.

43 only: A straddle has two breakevens, one above and one below the strike.

47 and 54: Uses each option's own premium; a straddle must recover the combined premium of 7 in either direction.

43 and 57: Total premium = 7. Upside breakeven = 50 + 7 = 57; downside = 50 − 7 = 43. Maximum loss is $700 if the stock closes at 50.

50 and 57: The strike is where the loss is greatest, not a breakeven.

Straddle breakevens = strike ± total premium; a long straddle profits from volatility in either direction.

Answer: D

1. Net debit = 5 − 2 = 3 ($300 maximum loss).
2. Breakeven = 40 + 3 = 43.
3. Maximum gain = (50 − 40) − 3 = 7 = $700.
4. A debit spread profits if the premiums widen.

Breakeven 53; maximum gain $300: Treats the position as a credit; the customer paid a net debit of 3, which is the maximum loss.

Breakeven 47; maximum gain $700: Subtracts the debit from the higher strike; debit call spreads add the debit to the lower (long) strike.

Breakeven 43; maximum gain $1,000: Uses the full strike difference and ignores the 3-point net debit.

Breakeven 43; maximum gain $700: Net debit = 3. Call spread breakeven = lower strike + net debit = 43. Maximum gain = strike difference − debit = 10 − 3 = 7 = $700.

Bull call spread: breakeven = lower strike + net debit; maximum gain = strike difference − debit; the investor wants the spread to widen.

Answer: A

1. Total cost per share = 52 + 2 = 54 → breakeven 54.
2. Worst case: exercise the put and sell at 50.
3. Maximum loss = 54 − 50 = 4 points = $400.

Breakeven 54; maximum loss $400: Breakeven for long stock + long put = stock cost + premium = 54. Maximum loss = (52 − 50) + 2 = 4 points = $400, because the put lets the customer sell at 50.

Breakeven 54; maximum loss $5,400: The put caps the loss; the customer can always sell at 50.

Breakeven 48; maximum loss $400: Subtracts the premium; buying the put raises the total cost, so the stock must rise to 54.

Breakeven 50; maximum loss $200: Uses the strike as breakeven and ignores the premium in the maximum loss.

Protective put: breakeven = stock cost + premium; maximum loss = (cost − strike) + premium; upside stays unlimited.

Answer: C

As a bullish reversal; a buy signal: That describes an inverted head-and-shoulders (bottom), not a top.

As a consolidation before the uptrend resumes: Breaking the neckline completes a reversal pattern, not a continuation.

As a bearish reversal; a sell signal: A completed head-and-shoulders top signals that an uptrend is reversing into a downtrend.

As a sign the stock is oversold and due to rise: The pattern signals more selling to come, not an oversold bounce.

Head-and-shoulders top = bearish reversal confirmed by a break below the neckline; an inverted head-and-shoulders = bullish reversal.

Answer: A

1. Net long-term: $4,000 − $12,000 = −$8,000.
2. Net short-term: +$2,000.
3. Overall net capital loss: −$8,000 + $2,000 = −$6,000.
4. Deduct $3,000 against ordinary income this year.
5. Carry forward $6,000 − $3,000 = $3,000 (keeps its long-term character).

Deduct $3,000; carry $3,000 forward: Net loss = $4,000 + $2,000 − $12,000 = −$6,000; $3,000 offsets ordinary income and $3,000 carries forward.

Deduct the full $6,000 net loss: Individuals may deduct only $3,000 of net capital loss against ordinary income each year.

Deduct $3,000; carry $5,000 forward: Fails to net the $2,000 short-term gain against the $8,000 net long-term loss.

Deduct $3,000; nothing carries forward: Unused net capital loss is not lost; it carries forward indefinitely.

Net short-term and long-term results first; a net capital loss offsets up to $3,000 of ordinary income a year, and the rest carries forward indefinitely.

Answer: C

1. Earnings for common = $12,000,000 − $2,000,000 = $10,000,000.
2. EPS = $10,000,000 ÷ 5,000,000 = $2.00.
3. P/E = $30 ÷ $2.00 = 15.

12.5: Uses EPS of $2.40 ($12M ÷ 5M) without subtracting preferred dividends.

10.7: Adds preferred dividends to net income (EPS $2.80) instead of subtracting them.

15.0: EPS = ($12M − $2M) ÷ 5M = $2.00; P/E = $30 ÷ $2.00 = 15.

6.7: That is the earnings yield (EPS ÷ price = 6.7%), the inverse of the P/E ratio.

EPS = (net income − preferred dividends) ÷ common shares outstanding; P/E = market price ÷ EPS.

Answer: A

1. Regular-way settlement is T+1: Tuesday, March 10.
2. Accrue from January 1 up to but not including March 10 on a 30/360 basis: January 30 + February 30 + March 9 = 69 days.
3. Annual interest = $10,000 × 6% = $600.
4. Accrued interest = $600 × 69/360 = $115.00.

$115.00: Settlement is Tuesday, March 10 (T+1). Accrual runs through March 9: 30 + 30 + 9 = 69 days; $600 × 69/360 = $115.00.

$116.67: Uses 70 days, as if the trade settled T+2 on March 11; regular-way settlement is T+1.

$113.33: Counts only up to the day before the trade date (68 days); accrual runs up to, not including, settlement date.

$111.78: Uses actual days over 365 (68/365); municipal bonds use 30/360.

Munis and corporates accrue on 30/360 from the last coupon date up to, but not including, settlement date; regular way settles T+1.

Answer: D

1. Taxable-equivalent yield = municipal yield ÷ (1 − tax bracket).
2. 1 − 0.32 = 0.68.
3. 4.08% ÷ 0.68 = 6.00%.

2.77%: Multiplies by (1 − 0.32); that converts a taxable yield to an after-tax yield, the reverse direction.

4.08%: This is the tax-free yield itself; a taxable bond must yield more to match it.

5.39%: Multiplies by (1 + 0.32) instead of dividing by (1 − 0.32).

6.00%: TEY = muni yield ÷ (1 − tax rate) = 4.08% ÷ 0.68 = 6.00%.

TEY = tax-free yield ÷ (1 − marginal rate). Munis favor investors in higher brackets.

Answer: C

1. Annual interest = 6% × $1,000 par = $60.
2. Market price = 96% of $1,000 = $960.
3. Current yield = $60 ÷ $960 = 0.0625 = 6.25%.

5.76%: Multiplies the coupon by the price (6% × 0.96) instead of dividing the annual interest by the price.

6.00%: This is the nominal (coupon) yield, which is fixed on par value and ignores the purchase price.

6.25%: Current yield = annual interest ÷ market price = $60 ÷ $960 = 6.25%.

6.53%: This approximates yield to maturity, which adds the $40 of discount earned to maturity; current yield ignores that accretion.

Current yield = annual interest ÷ current market price. A bond bought at a discount has a current yield above its coupon rate.

Answer: B

1. Initial: LMV $40,000; Reg T 50% deposit $20,000; debit balance $20,000.
2. Now: LMV = 1,000 × $50 = $50,000; equity = $50,000 − $20,000 = $30,000.
3. Reg T requirement = 50% × $50,000 = $25,000; excess equity = $30,000 − $25,000 = $5,000, credited to SMA.
4. Buying power = SMA ÷ 50% = $5,000 × 2 = $10,000.

$5,000: Wrong. $5,000 is the excess equity (SMA); buying power is twice SMA at a 50% Reg T requirement.

$10,000: Correct. Excess equity of $5,000 goes to SMA, and SMA supports purchases of twice its amount.

$20,000: Wrong. This doubles the full $10,000 gain; only half the gain is excess equity when Reg T is 50%.

$30,000: Wrong. $30,000 is total equity, not buying power.

Excess equity = equity − 50% of LMV; it is credited to SMA, and buying power = 2 × SMA.

Answer: B

All-or-none (AON): Wrong. AON requires the full quantity but does not require immediate execution; the order can stay open until filled in full.

Fill-or-kill (FOK): Correct. FOK combines both conditions: the whole order must be filled at once or the entire order is canceled.

Immediate-or-cancel (IOC): Wrong. IOC requires immediate execution but accepts a partial fill, canceling only the unfilled balance.

Not-held (NH): Wrong. Not-held gives the representative or floor broker time-and-price discretion; it says nothing about filling all shares at once.

FOK = all shares, immediately, or cancel. AON = all shares, no time requirement. IOC = immediately, partial fills allowed.