Step2Study

FINRA Series 7 practice questions

207 free questions with answers and explanations.

Practice test
  1. 1.A customer exercises a listed equity call option on Tuesday. Under current settlement rules, when will the resulting purchase of the underlying stock settle?Processes and Confirms Transactions
  2. 2.A U.S. investor holds an ADR representing shares of a British company. If the British pound weakens significantly against the U.S. dollar, what is the most likely effect on the investor's dividend income when converted to dollars?Investment Information and Suitable Recommendations
  3. 3.An investor in a real estate direct participation program sells a depreciated property at a gain. A portion of that gain is attributable to depreciation deductions previously taken against ordinary income. How is that portion of the gain generally taxed upon sale?Investment Information and Suitable Recommendations
  4. 4.A customer buys 1,000 shares of ABC stock at $50 per share in a new margin account. Under Reg T, what is the minimum amount the customer must deposit?Processes and Confirms Transactions
  5. 5.A customer wants to buy 5,000 shares of a thinly traded stock but insists that the entire order be executed in one transaction — partial fills are unacceptable. The customer does not require immediate execution and is willing to wait for the full quantity to be available. Which order type should the representative enter?Processes and Confirms Transactions
  6. 6.A customer enters a sell stop order at 45, limit 44.50 on a stock currently trading at 47. Later, the stock trades at 45.10 and then 44.75. What happens to the order?Processes and Confirms Transactions
  7. 7.An investor buys 100 shares of DEF stock at $40 and simultaneously sells 1 DEF 45 call for a premium of $3. What is the investor's maximum potential gain per share if the stock is called away?Investment Information and Suitable Recommendations
  8. 8.XYZ common stock closes today at $18.00, down from yesterday's close of $20.25, a decline of approximately 11%. This triggers the Reg SHO short sale price test circuit breaker. For the remainder of the day and the following trading day, short sale orders in XYZ are restricted to which condition?Processes and Confirms Transactions
  9. 9.A customer opens a margin account and purchases 200 shares of ABC stock at $100 per share, depositing the Reg T required margin of 50%. The stock later rises to $120 per share. How much Special Memorandum Account (SMA) is generated as a result of this price increase?Opens Accounts and Evaluates Customer Profile
  10. 10.A firm receives a written customer complaint alleging that a registered representative forged the customer's signature on account documents. Under FINRA Rule 4530, within how many calendar days must the firm report this complaint to FINRA?Processes and Confirms Transactions
  11. 11.An institutional customer settles securities transactions through its custodian bank rather than directly with the executing broker-dealer, with securities and payment exchanged simultaneously through the custodian. What is this settlement arrangement called?Processes and Confirms Transactions
  12. 12.A customer buys 200 shares of ABC stock at $50 per share in a margin account, depositing the Regulation T required 50% margin. The stock later rises to $70 per share. Assuming no further transactions, how much Special Memorandum Account (SMA) has been generated?Investment Information and Suitable Recommendations
  13. 13.A customer's margin account shows a long market value of $10,000 and a debit balance of $6,000, resulting in equity of $4,000. Because equity is below the 50% Reg T requirement, the account is restricted. The customer then sells $2,000 worth of stock from this account. Under the retention requirement for restricted accounts, how much of the sale proceeds must be applied to reduce the debit balance?Processes and Confirms Transactions
  14. 14.A registered representative is recommending a direct participation program to a client seeking current income with relatively lower risk compared to other oil and gas programs. Which type of oil and gas program would be MOST suitable?Investment Information and Suitable Recommendations
  15. 15.A 45-year-old client invested $40,000 in a nonqualified variable annuity that has grown to $60,000. She withdraws $10,000 for an emergency. How much of the withdrawal is subject to ordinary income tax and the 10% early withdrawal penalty?Investment Information and Suitable Recommendations
  16. 16.A client owns a nonqualified variable annuity issued five years ago and wants to move the contract value into a new annuity from a different insurance company offering lower fees, without triggering current income taxation. Which provision allows this transfer?Investment Information and Suitable Recommendations
  17. 17.A registered representative wants to send a written promotional piece to 40 retail prospects who are not existing clients. Under FINRA Rule 2210, this communication must be classified as which of the following, triggering prior principal approval before use?Seeks Business for the Broker-Dealer
  18. 18.A firm receives a written complaint from a customer alleging unauthorized trading by a registered representative. Under FINRA Rule 4513, how long must the firm retain the records related to this written complaint?Processes and Confirms Transactions
  19. 19.XYZ stock is trading at $45. A customer wants to buy the stock only if the price drops to $40 or lower. Which order should the representative enter?Processes and Confirms Transactions
  20. 20.A registered representative recommends a complex leveraged inverse ETF to several customers with varying risk tolerances and objectives, without fully understanding the product's daily reset mechanics or long-term holding risks. This is most likely a violation of which suitability obligation?Opens Accounts and Evaluates Customer Profile
  21. 21.A registered representative gives an unscripted presentation at a public investment seminar, discussing general market conditions and taking audience questions without a written script or slide deck. Under FINRA Rule 2210, this presentation is classified as:Seeks Business for the Broker-Dealer
  22. 22.A customer calls a branch office and orally expresses dissatisfaction about a delayed order execution but does not put the complaint in writing or send any written correspondence. Under FINRA Rule 4513, is the firm required to maintain this complaint in its written complaint file?Processes and Confirms Transactions
  23. 23.XYZ stock is trading at $60. A customer believes that if the stock breaks through resistance at $65, it will continue to rally, and wants to buy the stock only if it trades at or above $65. Which order should the registered representative enter?Processes and Confirms Transactions
  24. 24.A registered representative enters a market order to buy 200 shares of a NYSE-listed stock for a customer. At what price will this order be executed?Processes and Confirms Transactions
  25. 25.A customer's margin account has activity (trades) every month. How frequently must the broker-dealer send account statements to this customer?Processes and Confirms Transactions
  26. 26.A customer instructs a representative to sell short 500 shares of a thinly traded stock. Under Regulation SHO, what must the firm do before accepting this short sale order?Processes and Confirms Transactions
  27. 27.A customer signs a margin account agreement authorizing the broker-dealer to pledge the customer's margin securities as collateral for a bank loan used to finance the firm's margin lending. This provision of the margin agreement is known as the:Opens Accounts and Evaluates Customer Profile
  28. 28.A father opens a Uniform Gifts to Minors Act (UGMA) account for his 10-year-old daughter and deposits $5,000 of stock as custodian. Which statement is TRUE regarding this account?Opens Accounts and Evaluates Customer Profile
  29. 29.A registered representative executes a regular-way trade in listed common stock for a customer on Monday. Under current settlement rules, on what day must the trade settle?Processes and Confirms Transactions
  30. 30.An investor purchases 1 XYZ 50 call for $3 and 1 XYZ 50 put for $2, both expiring in the same month. What are the investor's breakeven points at expiration?Investment Information and Suitable Recommendations
  31. 31.A cold-calling representative wants to contact prospects during evening hours. Under the Telephone Consumer Protection Act (TCPA) provisions incorporated into FINRA rules, calls to a residential prospect are generally prohibited before 8:00 a.m. or after what time, based on the prospect's local time?Seeks Business for the Broker-Dealer
  32. 32.A customer wants to give her registered representative the authority to enter buy and sell orders in her account without prior approval each time, but she does not want the representative to be able to withdraw cash or securities from the account. Which type of authorization should be used?Opens Accounts and Evaluates Customer Profile
  33. 33.A registered representative prepares a retail communication recommending a specific options strategy to prospective clients. Under FINRA rules governing options communications, this material must:Seeks Business for the Broker-Dealer
  34. 34.A customer purchases $5,000 of stock in a cash account but fails to pay by the required Regulation T payment date. The broker-dealer liquidates the position for nonpayment. What is the consequence for the customer's cash account going forward?Processes and Confirms Transactions
  35. 35.A registered representative executes a trade for a customer acting as principal for the firm's own account. What must the trade confirmation disclose regarding this transaction?Processes and Confirms Transactions
  36. 36.A customer buys 1,000 shares of ABC stock at $50 per share in a margin account, meeting the 50% Regulation T initial margin requirement. The stock later declines to $30 per share, and the maintenance margin requirement is 25% of market value. What is the maintenance margin call amount, if any?Investment Information and Suitable Recommendations
  37. 37.A client in the 32% federal tax bracket is comparing a municipal bond yielding 4% to a corporate bond of similar credit quality. What yield must the corporate bond offer to provide an equivalent after-tax return?Investment Information and Suitable Recommendations
  38. 38.A convertible bond has a par value of $1,000 and a conversion ratio of 25. The bond is currently trading at $1,050. What is the parity price of the underlying common stock?Investment Information and Suitable Recommendations
  39. 39.A customer's combined margin account shows the following: long position market value $20,000 with a debit balance of $8,000, and short position market value $10,000 with a credit balance of $16,000. What is the customer's total combined equity in the account?Processes and Confirms Transactions
  40. 40.A customer sells short 1,000 shares of a stock at $3 per share in a margin account, creating a current market value of $3,000. Under FINRA maintenance margin rules, what is the minimum maintenance margin requirement for this short position?Processes and Confirms Transactions
  41. 41.A customer's long margin account has a market value of $15,000 and a debit balance of $7,000. Assuming a 50% Reg T initial margin requirement, how much cash, if any, may the customer withdraw from the account?Processes and Confirms Transactions
  42. 42.An investor establishes a bull call spread by buying 1 XYZ 50 call for $5 and selling 1 XYZ 60 call for $2, both expiring in the same month. What is the investor's maximum possible loss on this position?Investment Information and Suitable Recommendations
  43. 43.A registered representative is opening a new account for a 78-year-old customer. Under FINRA rules, the firm must make reasonable efforts to obtain the name and contact information of a trusted contact person. Which statement about the trusted contact person is TRUE?Opens Accounts and Evaluates Customer Profile
  44. 44.A representative emails a personalized market commentary to 20 existing retail clients within a 30-day period. Which statement about this communication is correct?Seeks Business for the Broker-Dealer
  45. 45.When completing a new account form for an individual customer under FINRA's suitability and Reg BI requirements, which of the following is required customer-specific information that must be obtained?Opens Accounts and Evaluates Customer Profile
  46. 46.A customer's margin account holds open securities positions but has had no trading activity for the past six months. How frequently is the firm required to send account statements to this customer?Processes and Confirms Transactions
  47. 47.A married couple residing in a community property state holds a joint brokerage account. Upon the death of one spouse, how is the account typically treated absent a will specifying otherwise?Opens Accounts and Evaluates Customer Profile
  48. 48.An investor is comparing two bonds of the same issuer and credit quality: Bond A has a 10-year maturity and a 6% coupon; Bond B has a 20-year maturity and a 3% coupon. If interest rates rise sharply, which bond will experience the greatest decline in price?Investment Information and Suitable Recommendations
  49. 49.A customer sells short 100 shares of XYZ at $40 in a margin account, depositing the Reg T required 50% margin. The stock later rises to $50. FINRA's short sale maintenance requirement is 30% of current market value. How much additional margin must the customer deposit to meet the maintenance call?Processes and Confirms Transactions
  50. 50.A registered representative recommends a corporate zero-coupon bond with a $1,000 face value maturing in 10 years, purchased for $600. The client asks how this bond is taxed each year even though no cash interest is received. Which statement is correct?Investment Information and Suitable Recommendations