Free Series 7 Suitability Practice Questions

Question 1

An aggressive 35-year-old customer with a long time horizon and stable income is concerned about inflation eroding his purchasing power. The registered representative should recommend a portfolio weighted toward:

Accepted Answer

equities and inflation-linked securities

Answer

long-term government bonds

Answer

money market instruments and cash equivalents

Answer

fixed annuities and bank certificates of deposit

Question 2

A customer two years from retirement informs his registered representative that he wants to reduce risk in his portfolio. The most appropriate change is to:

Accepted Answer

reduce equity exposure and increase intermediate-term investment-grade bonds

Answer

increase exposure to high-yield corporate bonds

Answer

shift entirely to non-traded REITs for current income

Answer

concentrate the portfolio in growth stocks for a final push

Question 3

A 30-year-old customer with stable employment, no dependents, and an aggressive risk tolerance contributes $7,000 to a Roth IRA. The customer wants to maximize potential growth. The most appropriate investment is:

Accepted Answer

a diversified equity fund focused on growth

Answer

a balanced fund holding 60% stocks and 40% bonds

Answer

an investment-grade corporate bond fund

Answer

a money market fund

Question 4

A registered representative meets with a 40-year-old customer who has a $500,000 inheritance to invest. The customer's profile shows: moderate risk tolerance, 25-year horizon, primary objective of growth and income. Which allocation is most appropriate?

Accepted Answer

70% equities, 25% bonds, 5% cash

Answer

100% large-cap growth equities

Answer

80% high-yield bonds, 20% money market

Answer

50% commodities, 50% emerging-market equities

Question 5

A registered representative observes that an elderly customer has begun making frequent calls placing unusually large trades inconsistent with the customer's prior pattern. The most appropriate first step is to:

Accepted Answer

consult with the firm's compliance department about possible diminished capacity

Answer

execute the trades because the customer has authorization

Answer

refuse all further trades until the customer comes to the branch in person

Answer

contact the trusted contact person and place a hold on the account

Question 6

A customer invests her life savings of $200,000 across three high-yield bond funds offered by three different fund families. The portfolio is:

Accepted Answer

not diversified because it is concentrated in a single asset class

Answer

diversified because it is spread across three fund families

Answer

diversified because high-yield funds reduce credit risk through pooling

Answer

not diversified because three funds is below the minimum threshold

Question 7

Under Regulation Best Interest, a registered representative recommending a securities transaction to a retail customer must:

Accepted Answer

act in the customer's best interest without placing the firm's interests ahead of the customer's

Answer

ensure the recommendation provides the customer with the highest possible return

Answer

obtain written acknowledgment that the customer has read the firm's Form CRS

Answer

limit recommendations to the lowest-cost product available in the category

Question 8

A 32-year-old with a 30-year time horizon, no immediate cash needs, and an aggressive risk tolerance should generally allocate the largest portion of her retirement portfolio to:

Accepted Answer

A diversified portfolio of equities

Answer

Investment-grade corporate bonds

Answer

Money market funds and CDs

Answer

U.S. Treasury notes and bonds

Question 9

A stock with a beta of 1.5 in a market that is expected to rise 8% would be expected to:

Accepted Answer

Rise approximately 12%

Answer

Rise approximately 5.3%

Answer

Rise approximately 8%

Answer

Rise approximately 15%

Question 10

The Sharpe ratio measures:

Accepted Answer

Excess return over the risk-free rate per unit of total risk

Answer

A portfolio's total return divided by its volatility

Answer

The percentage of portfolio risk attributable to systematic factors

Answer

A portfolio's tracking error against its benchmark

Question 11

A 65-year-old customer near retirement, with limited investment experience and modest savings, asks her representative about investing in a non-traded REIT carrying high distribution yield, a 7-year hold, and an 8% upfront load. The most appropriate response is:

Accepted Answer

decline to recommend the product on the basis of liquidity, fees, and the customer's profile

Answer

recommend the non-traded REIT given the high distribution yield

Answer

recommend the product but only with full disclosure of all costs

Answer

recommend a similar publicly traded REIT and proceed with the non-traded REIT for the remainder

Question 12

A wealthy 72-year-old widow has substantial pension and Social Security income that exceeds her needs. She wishes to grow $200,000 from a home sale as a legacy for her grandchildren. The most suitable investment is:

Accepted Answer

a closed-end equity trust with a long-term growth objective

Answer

a long-term-care annuity with a lifetime income rider

Answer

zero-coupon municipal bonds maturing in nine years

Answer

an open-end fund investing primarily in distressed debt

Question 13

A 92-year-old widow with sole income from Social Security recently received a $250,000 insurance settlement. She wants monthly income and to protect principal for her heirs. The most suitable portfolio is:

Accepted Answer

a ladder of Treasury notes and bonds

Answer

a diversified portfolio of large-cap stocks and corporate bonds

Answer

a diversified portfolio of equity ETFs and CMOs

Answer

a ladder of investment-grade municipal bonds

Question 14

An investor is in the highest federal income-tax bracket and lives in a high-tax state. For taxable fixed-income exposure, the most tax-efficient choice is generally:

Accepted Answer

in-state general obligation municipal bonds

Answer

high-yield corporate bonds

Answer

Treasury notes

Answer

out-of-state revenue municipal bonds

Question 15

A retail customer with modest assets and a five-year horizon to fund his daughter's college says he wants "safety first." The representative should:

Accepted Answer

recommend a Treasury and high-grade short-term bond ladder, with optional 529 plan structure for tax efficiency

Answer

place the funds in a balanced equity-bond portfolio

Answer

recommend a non-traded REIT for monthly distributions

Answer

place the funds in a single growth-oriented mutual fund

Question 16

A registered representative has been actively recommending trades in a customer's account, generating commission income that has tripled compared with prior quarters. The customer's stated investment objectives have not changed. This pattern most likely constitutes:

Accepted Answer

churning

Answer

unsuitable recommendations

Answer

unauthorized trading

Answer

selling away

Question 17

A 30-year-old client has a portfolio currently allocated 80% equities and 20% bonds. As she approaches age 50, the most appropriate gradual portfolio adjustment, all else equal, is to:

Accepted Answer

Gradually shift toward higher fixed income, such as roughly 60/40

Answer

Maintain the 80/20 allocation regardless of age

Answer

Increase equity allocation to 90% to maximize growth before retirement

Answer

Transition entirely to fixed income by age 50

Question 18

A 32-year-old customer earning $90,000 has $25,000 to invest. He is funding an emergency reserve, has no other investments, and tells the RR he wants 'maximum growth' and is 'not afraid of risk.' Of the following choices, which is the RR's most appropriate recommendation?

Accepted Answer

A diversified equity index fund

Answer

An emerging markets equity fund

Answer

A high-yield bond fund

Answer

A leveraged 3x sector ETF

Question 19

A customer plans to use the proceeds of an investment to fund a home purchase in 18 months. The customer is risk-tolerant generally but wants to avoid principal loss for this specific goal. The most appropriate investment is:

Accepted Answer

A short-term Treasury fund or money market fund

Answer

An S&P 500 index fund

Answer

A high-yield bond fund

Answer

A balanced fund with 60% equity exposure

Question 20

A customer opens a new account and refuses to provide information about her financial situation or investment objectives. The registered representative should:

Accepted Answer

Open the account but refrain from making investment recommendations to the customer

Answer

Open the account and make only conservative recommendations regardless of her needs

Answer

Refuse to open the account until the customer provides all required information

Answer

Contact FINRA for guidance before proceeding with the account opening

Question 21

A customer places a buy order for a speculative penny stock. The registered representative believes the investment is unsuitable for this customer. The RR executes the trade anyway without noting anything in the file. Which of the following BEST describes the problem with this approach?

Accepted Answer

The RR should have discussed the risks, attempted to dissuade the customer, and if the customer insisted, documented the order as unsolicited

Answer

The RR should have refused the order entirely regardless of customer instructions

Answer

There is no problem — customers have the right to buy any security they choose

Answer

The RR needed supervisor approval before executing any penny stock transaction

Question 22

A customer in the 35% federal tax bracket asks whether a 4% municipal bond or a 5.5% corporate bond would produce more after-tax income. Which statement is TRUE?

Accepted Answer

The municipal bond's tax-equivalent yield of approximately 6.15% exceeds the corporate bond's yield, making the municipal bond more suitable

Answer

The corporate bond is always better — higher yield always wins

Answer

The corporate bond is more suitable because it has a higher stated yield

Answer

They are equivalent for all investors in any tax bracket

Question 23

A customer with a 20-year investment horizon and a high risk tolerance asks about leveraged ETFs. The registered representative explains that leveraged ETFs are designed primarily for:

Accepted Answer

Short-term trading — daily rebalancing causes significant performance decay over longer periods

Answer

Capital preservation — the leverage protects the principal from downside losses

Answer

Retirement income — they distribute higher dividends than standard ETFs

Answer

Long-term buy-and-hold investors seeking amplified market exposure over many years

Question 24

A customer who lists his investment objective as 'capital preservation' and has no prior options experience asks to write naked calls on a volatile biotech stock. The registered representative should:

Accepted Answer

Deny the request — the strategy carries theoretically unlimited loss potential, which is entirely inconsistent with capital preservation

Answer

Approve the request if the customer signs a disclosure statement acknowledging the risks

Answer

Approve the request if the out-of-the-money calls are at least 10% above the current market price

Answer

Approve the request — naked call writing is a neutral-to-bearish strategy that preserves capital

Question 25

A registered representative recommends a product that is suitable for the customer but also pays the RR a significantly higher commission than comparable alternatives. Under current industry standards, the RR is REQUIRED to:

Accepted Answer

Act in the customer's best interest and not allow the higher compensation to drive the recommendation if a comparable product serves the customer equally well at lower cost

Answer

Disclose the commission difference in writing and then proceed with the higher-commission product

Answer

Always recommend the lowest-commission product regardless of suitability

Answer

Obtain written customer consent before recommending any product that pays a commission

Series 7 Suitability Practice Questions — Free, With Answers

Series 7 Suitability Practice Questions — Free, With Answers

Question 1 of 25An aggressive 35-year-old customer with a long time horizon and stable income is concerned about inflation eroding his purchasing power. The registered representative should recommend a portfolio weighted toward:

Question 2 of 25A customer two years from retirement informs his registered representative that he wants to reduce risk in his portfolio. The most appropriate change is to:

Question 3 of 25A 30-year-old customer with stable employment, no dependents, and an aggressive risk tolerance contributes $7,000 to a Roth IRA. The customer wants to maximize potential growth. The most appropriate investment is:

Question 4 of 25A registered representative meets with a 40-year-old customer who has a $500,000 inheritance to invest. The customer's profile shows: moderate risk tolerance, 25-year horizon, primary objective of growth and income. Which allocation is most appropriate?

Question 5 of 25A registered representative observes that an elderly customer has begun making frequent calls placing unusually large trades inconsistent with the customer's prior pattern. The most appropriate first step is to:

Question 6 of 25A customer invests her life savings of $200,000 across three high-yield bond funds offered by three different fund families. The portfolio is:

Question 7 of 25Under Regulation Best Interest, a registered representative recommending a securities transaction to a retail customer must:

Question 8 of 25A 32-year-old with a 30-year time horizon, no immediate cash needs, and an aggressive risk tolerance should generally allocate the largest portion of her retirement portfolio to:

Question 9 of 25A stock with a beta of 1.5 in a market that is expected to rise 8% would be expected to:

Question 10 of 25The Sharpe ratio measures:

Question 11 of 25A 65-year-old customer near retirement, with limited investment experience and modest savings, asks her representative about investing in a non-traded REIT carrying high distribution yield, a 7-year hold, and an 8% upfront load. The most appropriate response is:

Question 12 of 25A wealthy 72-year-old widow has substantial pension and Social Security income that exceeds her needs. She wishes to grow $200,000 from a home sale as a legacy for her grandchildren. The most suitable investment is:

Question 13 of 25A 92-year-old widow with sole income from Social Security recently received a $250,000 insurance settlement. She wants monthly income and to protect principal for her heirs. The most suitable portfolio is:

Question 14 of 25An investor is in the highest federal income-tax bracket and lives in a high-tax state. For taxable fixed-income exposure, the most tax-efficient choice is generally:

Question 15 of 25A retail customer with modest assets and a five-year horizon to fund his daughter's college says he wants "safety first." The representative should:

Question 16 of 25A registered representative has been actively recommending trades in a customer's account, generating commission income that has tripled compared with prior quarters. The customer's stated investment objectives have not changed. This pattern most likely constitutes:

Question 17 of 25A 30-year-old client has a portfolio currently allocated 80% equities and 20% bonds. As she approaches age 50, the most appropriate gradual portfolio adjustment, all else equal, is to:

Question 18 of 25A 32-year-old customer earning $90,000 has $25,000 to invest. He is funding an emergency reserve, has no other investments, and tells the RR he wants 'maximum growth' and is 'not afraid of risk.' Of the following choices, which is the RR's most appropriate recommendation?

Question 19 of 25A customer plans to use the proceeds of an investment to fund a home purchase in 18 months. The customer is risk-tolerant generally but wants to avoid principal loss for this specific goal. The most appropriate investment is:

Question 20 of 25A customer opens a new account and refuses to provide information about her financial situation or investment objectives. The registered representative should:

Question 22 of 25A customer in the 35% federal tax bracket asks whether a 4% municipal bond or a 5.5% corporate bond would produce more after-tax income. Which statement is TRUE?

Question 23 of 25A customer with a 20-year investment horizon and a high risk tolerance asks about leveraged ETFs. The registered representative explains that leveraged ETFs are designed primarily for:

Question 24 of 25A customer who lists his investment objective as 'capital preservation' and has no prior options experience asks to write naked calls on a volatile biotech stock. The registered representative should:

Question 25 of 25A registered representative recommends a product that is suitable for the customer but also pays the RR a significantly higher commission than comparable alternatives. Under current industry standards, the RR is REQUIRED to:

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