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Free Series 7 Practice Questions

25 exam-style questions from the Series 7 Mastery practice exam, with the answer and a full explanation for each. Try every question before you open the answer.

By Muhammad Babar, MBA · Updated

These questions are weighted toward Function 3, just like the real Series 7. Work each one on paper, then check the explanation. Keep a list of the topics you miss — that list is your study plan. When you finish, see how to pass the Series 7 or review the formula sheet.

Prospecting, communications and new issues

Function 1 · Chapter 2

Question 1

A registered representative plans to send the same email describing the firm's new wealth-management service to 40 retail prospects next week. Which statement is TRUE?

  1. A. It is correspondence and needs no review
  2. B. It is a retail communication and must be approved by a principal before it is sent
  3. C. It is an institutional communication
  4. D. It must be filed with FINRA 30 days before use
Show answer and explanation

Answer: B. It is a retail communication and must be approved by a principal before it is sent

Distribution to more than 25 retail investors within 30 days makes it a retail communication, which requires principal approval before use. Filing is not generally required for this type of communication by an established member.

Question 2

In which type of underwriting does the issuer bear the risk of unsold securities?

  1. A. Firm commitment
  2. B. Standby
  3. C. Best efforts
  4. D. Eastern account
Show answer and explanation

Answer: C. Best efforts

In a best-efforts underwriting the underwriter acts as agent and returns unsold securities to the issuer. In a firm commitment (and for the unsubscribed shares in a standby), the underwriter bears the risk.

Question 3

Under Rule 144, an affiliate who sells restricted stock must file Form 144 if, in a 90-day period, the sale exceeds:

  1. A. 1,000 shares or $10,000
  2. B. 5,000 shares or $50,000
  3. C. 10,000 shares or $100,000
  4. D. 1% of the outstanding shares
Show answer and explanation

Answer: B. 5,000 shares or $50,000

Form 144 is required when sales in a 90-day period exceed 5,000 shares or $50,000 in value.

Customer accounts, retirement and AML

Function 2 · Chapters 3–4

Question 4

Which item is required by the Customer Identification Program before an account may be opened for an individual U.S. citizen?

  1. A. Employer's name
  2. B. Date of birth
  3. C. Net worth
  4. D. A trusted contact person
Show answer and explanation

Answer: B. Date of birth

CIP requires name, date of birth, a street address and an identification number. Employer, net worth and trusted contact are collected for other purposes and are not CIP requirements.

Question 5

A married couple holds an account as joint tenants with right of survivorship. One spouse dies. What happens to the account?

  1. A. It is frozen until the deceased spouse's will is probated
  2. B. Half passes to the deceased spouse's estate
  3. C. It passes to the surviving spouse
  4. D. It is divided according to each spouse's contributions
Show answer and explanation

Answer: C. It passes to the surviving spouse

With JTWROS, the deceased owner's interest passes automatically to the surviving owner(s), outside of probate. The survivor provides a death certificate and re-registers the account.

Question 6

A 45-year-old customer in 2026 has $9,000 of wages. What is the maximum she may contribute to her IRAs for the year?

  1. A. $9,000
  2. B. $8,600
  3. C. $7,500
  4. D. $6,000
Show answer and explanation

Answer: C. $7,500

The 2026 limit is the lesser of earned income or $7,500. The $1,100 catch-up applies only at age 50 or older.

Question 7

Which is TRUE of a 529 plan?

  1. A. Contributions are deductible on the federal return
  2. B. Contributions are limited to $2,000 per year
  3. C. The account owner retains control and may change the beneficiary to another family member
  4. D. Earnings on non-qualified withdrawals are tax-free
Show answer and explanation

Answer: C. The account owner retains control and may change the beneficiary to another family member

The 529 owner keeps control and may change beneficiaries within the family. Contributions are not federally deductible, there is no $2,000 limit (that is a Coverdell rule), and non-qualified earnings are taxed plus a 10% penalty.

Question 8

Which of the following is the FIRST stage of money laundering?

  1. A. Integration
  2. B. Layering
  3. C. Placement
  4. D. Structuring
Show answer and explanation

Answer: C. Placement

Placement — introducing illicit funds into the financial system — comes first, followed by layering and integration. Structuring is a technique used during placement.

Equity, debt, municipal and fund products

Function 3 · Chapters 5–12

Question 9

Which type of preferred stock would be MOST affected by changes in the price of the issuer's common stock?

  1. A. Cumulative preferred
  2. B. Convertible preferred
  3. C. Adjustable-rate preferred
  4. D. Callable preferred
Show answer and explanation

Answer: B. Convertible preferred

A convertible preferred's value is tied to the common stock through its conversion feature, especially when the conversion value is above its investment value.

Question 10

A $1,000 par convertible bond has a conversion price of $25. The common stock trades at $28. What is the bond's parity price?

  1. A. $1,120
  2. B. $1,000
  3. C. $893
  4. D. $1,250
Show answer and explanation

Answer: A. $1,120

Conversion ratio = $1,000 ÷ $25 = 40 shares. Parity of the bond = 40 × $28 = $1,120.

Question 11

A 6% corporate bond is quoted at 108. The current yield is approximately:

  1. A. 5.56%
  2. B. 6.00%
  3. C. 6.48%
  4. D. 8.00%
Show answer and explanation

Answer: A. 5.56%

Current yield = annual interest ÷ price = $60 ÷ $1,080 = 5.56%.

Question 12

A Treasury note is quoted at 98-08. What is the dollar price per $1,000 of par?

  1. A. $980.80
  2. B. $980.08
  3. C. $982.50
  4. D. $988.00
Show answer and explanation

Answer: C. $982.50

98-08 = 98 8/32 = 98.25% of par = $982.50.

Question 13

A customer in the 32% federal tax bracket owns a municipal bond yielding 3.4%. What is the tax-equivalent yield?

  1. A. 2.31%
  2. B. 4.49%
  3. C. 5.00%
  4. D. 10.63%
Show answer and explanation

Answer: C. 5.00%

TEY = 3.4% ÷ (1 − 0.32) = 3.4% ÷ 0.68 = 5.00%.

Question 14

A mutual fund has a NAV of $12.00 and a POP of $12.75. The sales charge as a percentage of POP is:

  1. A. 5.88%
  2. B. 6.25%
  3. C. 7.50%
  4. D. 8.50%
Show answer and explanation

Answer: A. 5.88%

($12.75 − $12.00) ÷ $12.75 = $0.75 ÷ $12.75 = 5.88%. (As a percentage of NAV it would be 6.25% — a common distractor.)

Question 15

Which statement about REITs is TRUE?

  1. A. Investors may deduct the REIT's depreciation on their own returns
  2. B. REIT dividends are qualified dividends taxed at long-term capital gains rates
  3. C. A REIT must distribute at least 90% of its taxable income to avoid corporate tax
  4. D. All REITs are traded on exchanges
Show answer and explanation

Answer: C. A REIT must distribute at least 90% of its taxable income to avoid corporate tax

The 90% distribution requirement is central to REIT status. Losses and depreciation do not pass through, most REIT dividends are not qualified, and non-traded REITs exist.

Options

Function 3 · Chapters 13–14

Question 16

A customer purchases 200 shares of a stock at $45 and simultaneously buys 2 puts with a 40 strike at 1.50. What is the customer's maximum potential loss?

  1. A. $300
  2. B. $1,000
  3. C. $1,300
  4. D. $9,300
Show answer and explanation

Answer: C. $1,300

Protective put. Per share: cost $45 + premium $1.50 = $46.50; floor (put strike) $40; loss = $6.50 × 200 shares = $1,300.

Question 17

An investor owns 100 shares of DEF at $70 and writes 1 DEF 75 call at 2. What is the investor's breakeven?

  1. A. $68
  2. B. $72
  3. C. $73
  4. D. $77
Show answer and explanation

Answer: A. $68

Covered call breakeven = stock cost − premium = $70 − $2 = $68.

Question 18

An investor buys 1 ABC Jul 60 call at 4 and 1 ABC Jul 60 put at 3. What are the breakeven points?

  1. A. $53 and $67
  2. B. $56 and $64
  3. C. $57 and $63
  4. D. $60 only
Show answer and explanation

Answer: A. $53 and $67

Long straddle: total premium $7. Breakevens = $60 ± $7 = $53 and $67.

Question 19

An investor sells 1 DEF 45 call at 6 and buys 1 DEF 50 call at 3. What is the maximum gain?

  1. A. $200
  2. B. $500
  3. C. $600
  4. D. $300
Show answer and explanation

Answer: D. $300

Selling the more valuable (lower-strike) call creates a $3 credit — a bear call spread. Maximum gain is the credit, $300. Maximum loss is $5 − $3 = $2 × 100 = $200; breakeven is $48.

Margin, taxation and economics

Function 3 · Chapters 15–17

Question 20

A customer opens a margin account and buys 500 shares of XYZ at $30. What is the Reg T requirement?

  1. A. $2,000
  2. B. $3,750
  3. C. $7,500
  4. D. $15,000
Show answer and explanation

Answer: C. $7,500

500 × $30 = $15,000; Reg T 50% = $7,500, which exceeds the $2,000 FINRA minimum.

Question 21

A margin customer has a debit balance of $30,000. Below what long market value will a FINRA maintenance call be issued?

  1. A. $40,000
  2. B. $37,500
  3. C. $45,000
  4. D. $60,000
Show answer and explanation

Answer: A. $40,000

$30,000 ÷ 0.75 = $40,000. At that value, equity ($10,000) equals 25% of LMV.

Question 22

A woman inherits stock that her father bought for $15,000. It was worth $42,000 when he died. She sells it four months later for $45,000. What is her gain?

  1. A. $30,000 short-term
  2. B. $3,000 long-term
  3. C. $3,000 short-term
  4. D. $30,000 long-term
Show answer and explanation

Answer: B. $3,000 long-term

Inherited property receives a step-up in basis to $42,000, and the holding period is automatically long-term.

Question 23

To slow inflation, the Federal Reserve would MOST likely:

  1. A. Buy Treasury securities in the open market
  2. B. Lower the discount rate
  3. C. Raise the target range for the federal funds rate
  4. D. Lower interest on reserve balances
Show answer and explanation

Answer: C. Raise the target range for the federal funds rate

Raising the fed funds target range (supported by a higher IORB) tightens credit. The other actions are expansionary.

Orders, trading and settlement

Function 4 · Chapter 18

Question 24

Which order type guarantees a price but not an execution?

  1. A. Market order
  2. B. Sell stop order
  3. C. Buy limit order
  4. D. Buy stop order
Show answer and explanation

Answer: C. Buy limit order

A limit order will execute only at the limit price or better, so the price is guaranteed but the order may never execute. Stop orders become market orders when triggered.

Question 25

The ex-dividend date for a stock trading regular way is:

  1. A. Two business days before the record date
  2. B. One business day before the record date
  3. C. The same day as the record date
  4. D. One business day after the payable date
Show answer and explanation

Answer: C. The same day as the record date

With T+1 settlement, the ex-dividend date is the same as the record date. (For distributions of 25% or more, the ex-date follows the payable date.)

Your score: 25 questions. 20 or more correct (80%) is a strong result; under 18 (72%), focus on the sections where you missed the most. The full book has 232 practice questions including a complete 125-question practice exam.