Series 7
Series 7 is a trademark of its owner, which is not affiliated with and does not endorse Test Treasure Publication or TTP Prep.
Series 7 is a trademark of its owner, which is not affiliated with and does not endorse Test Treasure Publication or TTP Prep.
10 sample questions for the Series 7, with the correct answer and an explanation for each. No account needed. Try each one before you open the answer.
Sections covered on the exam: Practicetest1, Options, Newissuesandunderwriting, Profiles, Opening Accounts and Customer Profiles, Retirementandeducationaccounts, Suitabilityandaccountapproval, Investmentrisks,Analysis,Andstrategies, Equity Securities, Seeking Business for the Broker-Dealer, Debt Securities, Investment Risks, Analysis, and Strategies, Municipalsecurities, Packagedproducts, Customer Disclosures, Accounts, and Records, Processing Transactions and Margin, Quotes,Orders,Andmarketstructure, Settlementanddelivery, Margin, Practicetest2.
Question 1 · Practicetest1
A registered representative at a long-established member firm sends the same email describing the firm's financial planning services to 30 retail prospects over a 30- calendar-day period. How is the email classified, and what is required?
Answer: B. Retail communication; a qualified principal must approve it before it is sent
A written communication distributed to more than 25 retail investors within any 30-calendar-day period is a retail communication, and retail communications generally require principal approval before use. Treating it as correspondence would be correct only at 25 or fewer retail recipients. Pre-use filing 10 business days in advance applies to a new member firm's first year and to certain specific products, not to a general services email from an established firm.
Question 2 · Investmentrisks,Analysis,Andstrategies
A customer bought ABC stock at $50, received $2.00 per share in dividends over the next twelve months, and then sold the stock at $54. Consumer prices rose 3% over the same period. What was the customer's approximate real (inflation-adjusted) rate of return?
Answer: A. 9%
Total return = (price gain + income) ÷ cost = ($4 + $2) ÷ $50 = 12%. The approximate real return subtracts inflation: 12% − 3% = 9%. The 5% figure uses only the 8% price change and ignores the dividends; 12% is the nominal total return before inflation.
Question 3 · Debt Securities
A customer buys $1,000 par of TIPS with a 2% coupon. Six months later, inflation adjustments have raised the principal to $1,030. What is the semiannual interest payment?
Answer: B. $10.30
TIPS pay the fixed coupon rate on the inflation-adjusted principal: $1,030 × 2% ÷ 2 = $10.30. Using the original $1,000 gives $10.00, and $20.60 is the annual amount. The $30 principal increase is not paid in cash until maturity but is taxable in the year it accrues, creating phantom income.
Question 4 · Packagedproducts
A customer annuitizes a variable annuity with an assumed interest rate of 4%, and her first monthly payment is $1,000. The separate account then earns annualized returns of 6%, 5%, and 3% in the next three months, which determine her second, third, and fourth payments, respectively. Which statement is TRUE?
Answer: D. The fourth payment is lower than the third payment
Payments rise when the separate account beats the AIR and fall when it trails the AIR. Returns of 6% and 5% both exceed 4%, so the second and third payments each increase; 3% is below 4%, so the fourth payment falls. The fourth payment stays above $1,000 because the two earlier increases outweigh the one decrease. A decline in return that still beats the AIR does not reduce the payment, and the AIR is a benchmark, not a guarantee.
Question 5 · Customer Disclosures, Accounts, and Records
A married customer writes an $80,000 check from his individual account to his adult daughter. His wife consents to split the gift on a timely filed gift tax return, and neither spouse made other gifts to the daughter this year. What total amount of taxable gifts do the spouses report against their lifetime exemptions?
Answer: B. $42,000
With gift splitting, each spouse is treated as giving $40,000; each subtracts the $19,000 annual exclusion, leaving $21,000 of taxable gift apiece, or $42,000 combined. No tax is actually paid because the taxable gifts are absorbed by the unified lifetime exemption. The $61,000 figure applies only one $19,000 exclusion, as if the gift were not split.
Question 6 · Practicetest2
A representative at an established member firm plans a free retirement-income seminar at a public library. She will mail a printed invitation to 200 local retail investors, and the seminar itself will be an unscripted talk. What approval does the mailed invitation require?
Answer: C. Principal approval before it is sent
An invitation distributed to more than 25 retail investors within 30 calendar days is a retail communication, which generally requires principal approval before use. The unscripted talk itself is a public appearance, but the written invitation is not. Pre-use filing is not required for an established firm's seminar invitation, and post-use review applies to correspondence (25 or fewer retail investors).
Question 7 · Investmentrisks,Analysis,Andstrategies
A customer's portfolio holds only large-cap U.S. stocks. She is considering adding one of the funds below, each with similar expected return and volatility. Which addition would MOST reduce the portfolio's overall volatility? Fund A +0.85 Fund B +0.40 Fund C 0.00 Fund D −0.30
Answer: D. Fund D
The lower the correlation between assets, the greater the diversification benefit; a negative correlation means the fund tends to move opposite the existing holdings, offsetting some of their swings. Fund D (−0.30) therefore reduces volatility the most. Fund C (0.00) helps, but uncorrelated returns offset less than negatively correlated returns, and Fund A behaves almost like the stocks already held.
Question 8 · Debt Securities
A representative is preparing a retail communication about collateralized mortgage obligations. Under FINRA Rule 2216, which content is REQUIRED?
Answer: A. A statement that the CMO's yield and average life will fluctuate with prepayments
Rule 2216 requires CMO retail communications to state that yield and average life will fluctuate depending on the prepayment rate of the underlying mortgages and interest rate changes. The rule prohibits comparing CMOs with other investment vehicles such as CDs and requires the product to be called a collateralized mortgage obligation.
Question 9 · Packagedproducts
A customer annuitizes using a life annuity with 10-year period certain. The customer dies after receiving payments for 4 years. What happens next?
Answer: C. The beneficiary receives payments for the remaining 6 years
A life annuity with period certain pays for the annuitant's life but guarantees payments for at least the stated period. With 10 years guaranteed and 4 received, the beneficiary receives the remaining 10 − 4 = 6 years. Payments stopping at death describes a straight life annuity.
Question 10 · Processing Transactions and Margin
Under FINRA Rule 4370, how must a member firm disclose its business continuity plan to customers?
Answer: C. Provide a written summary at account opening, post it on the firm's website, and mail it on request
Firms must disclose a summary of the business continuity plan (addressing how the firm will respond to significant business disruptions) to customers in writing at account opening, post it on the firm's website if it has one, and mail it to customers on request. The full plan is not delivered to customers or filed with the SEC, and waiting until a disruption occurs would defeat the purpose of the disclosure.
TTP Prep has 200 Series 7 practice questions with explanations, timed and mock-exam modes, 366 flashcards, interactive lessons, a printable cheat sheet and a readiness score. Start free, no card needed.
More free questions: browse every exam.