Free Series 7 Practice Exam — 125 Questions, No Signup
This is a full-length Series 7 practice exam: 125 questions, weighted exactly like FINRA weights the real thing. Every question comes from my private bank — the same one my tutoring students use. Instant scoring, my explanation under every answer, and an optional 3-hour-45-minute exam timer if you want the full dress rehearsal. The questions and answer choices shuffle every time you load the page, so retakes stay honest. No signup, no email, no catch.
I’m Ken Finnen — NYSE floor trader 1989–2009, technical editor of Series 7 For Dummies. I PASS PEOPLE. THAT’S WHAT I DO.
A registered representative posts on a personal social-media page that her firm has just initiated coverage of a thinly traded biotech with a 'strong buy.' She tags the firm's research department in the post. For supervisory purposes, this post is treated as:
Ken’s take
Posts on social media accessible to the public are retail communications when distributed or made available to more than 25 retail investors within any 30 calendar-day period.
A representative wishes to place an unsolicited telemarketing call. Which of the following times is permissible under federal telemarketing rules, measured in the prospect's local time?
Ken’s take
8 a.m.-9 p.m. local window; A and D bracket the limits.
A retail communication for a variable annuity may include which of the following?
Ken’s take
Hypothetical illustrations with assumed rates are permitted for variable products; specific predictions are not.
A representative plans to host an in-person investor seminar. Which oversight requirement applies BEFORE the event?
Ken’s take
Written distributed materials = retail comm requiring pre-use approval; spoken portion is the public appearance.
A retail communication concerning a non-conventional structured product must:
Ken’s take
Within 10 business days of first use; A flips the timing pivot.
A firm permits a representative to attend a non-cash compensation training conference hosted by a registered investment company. Attendance is permissible under FINRA rules if:
Ken’s take
Non-cash comp: appropriate location + firm pre-approval are core conditions.
Under Reg BI's Conflict of Interest Obligation, a broker-dealer must:
Ken’s take
Conflicts Obligation: written policies to identify and address; only certain conflicts must be eliminated.
A retail communication contains a hyperlink to a third-party article about general market conditions. Under FINRA rules, the firm:
Ken’s take
Hyperlinking to third-party content generally adopts that content.
A firm has previously approved a templated retail communication that representatives may customize with the recommended fund's name and ticker. Under FINRA rules, the rep's customization:
Ken’s take
Pre-approved template + non-material customization (name, ticker) doesn't require new approval.
Which of the following must be obtained from a customer to satisfy the Customer Identification Program (CIP) at account opening?
Ken’s take
The CIP rule requires four pieces of information at account opening: name, date of birth, address, and a taxpayer identification number (typically SSN for U.S. persons).
Two business partners open a tenants-in-common (TIC) account. The agreement is silent on ownership shares. Upon the death of one partner, that partner's interest in the account:
Ken’s take
TIC: deceased's interest passes through their estate.
A representative receives a customer's verbal instruction to 'buy whatever you think is best' in the customer's account. Before exercising this discretion, the representative must:
Ken’s take
Discretion requires prior written customer authorization plus firm approval.
Under FINRA Rule 4512, a firm may contact a customer's trusted contact person to:
Ken’s take
Permitted reasons include addressing possible exploitation or health concerns.
A joint tenants with rights of survivorship account is held by a married couple. Either party may:
Ken’s take
Joint account: either party can place orders without the other's specific authorization.
A registered representative learns that a customer's marital status and address have changed. Under FINRA rules, the firm must:
Ken’s take
Update record and send copy to customer per Rule 4512 / 17a-3.
A non-spouse beneficiary inherits a traditional IRA from a customer who died in the current year. Under the SECURE Act, the beneficiary must generally:
Ken’s take
SECURE Act 10-year rule applies to non-eligible designated beneficiaries.
A clearing firm and an introducing firm operate under a clearing agreement. Customer accounts are carried on a fully disclosed basis, meaning:
Ken’s take
Fully disclosed: clearing firm knows each customer and holds the assets.
A customer gives his registered representative written authorization to buy and sell securities, select the specific securities, and determine the size of each trade. Several months later, the customer's son informs the firm that his father has been diagnosed with dementia and was likely incompetent when he signed the authorization. The firm should:
Ken’s take
Suspend discretion, investigate the capacity claim, and consult legal/compliance before acting.
The Options Disclosure Document (Characteristics and Risks of Standardized Options) must be delivered to the customer:
Ken’s take
The ODD must be delivered at or prior to options account approval.
An RR receives a written customer complaint via email regarding the recommendation of a mutual fund. Under FINRA rules, the RR must:
Ken’s take
Customer complaints are forwarded to a supervisor and handled/recorded per firm written supervisory procedures.
A municipality is considering issuing a bond anticipation note. The municipality's most likely reason for using a BAN is to:
Ken’s take
BANs bridge the gap until long-term bonds are issued for the project.
A customer purchases a tax-exempt municipal bond at a premium. The premium amortization for tax purposes:
Ken’s take
Muni premium is amortized: basis reduced annually, no deduction (interest is tax-exempt).
A customer is investing for the college expenses of a 6-year-old. Which of the following statements is true about a 529 college savings plan?
Ken’s take
529 earnings grow tax-deferred; qualified educational withdrawals are federally tax-free.
Interest paid on private-activity bonds issued to finance single-family housing is generally:
Ken’s take
Most private-activity municipal bonds (single-family housing, IDBs, airport, and similar projects) generate interest that is exempt from regular federal income tax but is a preference item for the alternative minimum tax. Investors potentially subject to AMT should evaluate after-AMT yield; investors below the AMT threshold may treat the income as fully exempt. The GO-versus-revenue distinction and the in-state-resident rule address different concepts (debt-backing and state-tax exemption, respectively).
Under MSRB Rule G-15, a customer confirmation for a municipal bond transaction in a callable bond must include:
Ken’s take
G-15 requires disclosure of the yield to worst (lower of YTM or YTC) on callable bonds. Trap A is incomplete. Trap C describes a separate mark-up disclosure rule that applies under specific conditions, not universally. Trap D is informational, not required by G-15 confirmation rules.
A new-issue municipal bond is sold at a price below par. The accretion of the original issue discount (OID) over the bond's life is treated for federal tax purposes as:
Ken’s take
OID accretion on a tax-exempt municipal new issue is itself tax-exempt at the federal level. Trap B applies the corporate-bond OID treatment. Trap C describes secondary-market discount on a muni (taxable as ordinary income up to accreted amount, capital gain beyond), not OID. Trap D mischaracterizes the basis adjustment.
When analyzing the credit of a local GO, an analyst calculates the total debt burden on residents from the city, the school district, and the county. This measure is referred to as:
Ken’s take
Overlapping debt sums obligations of jurisdictions that share the same taxpayer base. Trap A is the city's debt alone. Trap B is a revenue-bond metric (debt service vs. project revenue). Trap D refers to debt repaid by user fees, not taxes.
A municipal issuer sells taxable bonds that carry a direct federal interest-cost subsidy paid to the issuer. This bond is best characterized as:
Ken’s take
Build America Bonds (BABs) are taxable munis where the federal government subsidizes a portion of the issuer's interest cost. Trap A involves a private user and is typically AMT-preference. Trap B is a small-issuer tax-exempt designation. Trap D is also taxable for AMT purposes, but doesn't carry a federal interest subsidy.
A toll-road authority issues bonds payable solely from highway tolls. The bond's security depends primarily on:
Ken’s take
Revenue bonds depend on the income stream from the project — here, tolls. Trap A converts it to a GO. Trap C is irrelevant (the issuer is the authority, and ratings apply to the bond, not a legislature). Trap D would describe a grant-anticipation note.
A revenue bond indenture allows additional parity bonds to be issued provided coverage tests are met. The indenture is best described as:
Ken’s take
Open-end indentures permit additional parity bonds subject to tests. Trap A is the opposite — no further parity debt. Trap C creates junior debt with a lower claim. Trap D adds third-party insurance, unrelated to the indenture's structure.
An airport authority issues bonds to fund terminal expansion. Repayment comes from airline lease and passenger facility charges. Bondholder risk increases most directly from:
Ken’s take
Airport revenue bonds depend on usage of the airport. Trap B is the local-GO risk. Trap C is the state-GO risk. Trap D would actually reduce risk, if anything.
A revenue bond differs from a corporate bond most fundamentally in:
Ken’s take
Muni interest is generally federally tax-exempt; corporate interest is not. Trap B is true but is consequence of A. Trap C is broadly required for both. Trap D applies to both.
Compared to municipal bonds, municipal notes are most distinguishable by:
Ken’s take
Notes are short-term, typically 12 months or less. Trap A overstates the security structure. Trap C describes a feature shared with muni bonds. Trap D invents a payment frequency rule that isn't a defining feature.
A registered representative is recommending munis to a high-income client who is consistently subject to AMT. The LEAST suitable recommendation is:
Ken’s take
Private-activity bond interest becomes a preference item that defeats the tax benefit for AMT-exposed clients. Traps A, B, and C all preserve the federal exemption for AMT taxpayers.
The MSRB has rulemaking authority over municipal securities dealers. For broker-dealer member firms, the MSRB's rules are enforced by:
Ken’s take
MSRB writes the rules but doesn't enforce them; FINRA enforces against broker-dealer firms. Trap A overstates MSRB's role. Trap C oversimplifies — SEC has oversight but doesn't enforce dealer rules. Trap D applies to Series 63 / state-level activity, not MSRB conduct.
An issuer distributes a disclosure document during the pre-sale period that omits final pricing terms because they have not yet been set. This document is best described as:
Ken’s take
POS is distributed before pricing is set; the final OS adds final terms. Trap A is issued after pricing. Trap C invites underwriter bids. Trap D addresses tax-exempt and enforceability questions.
A high-bracket investor in New York asks about adding munis for tax efficiency. Among the choices below, the option that maximizes federal AND state tax exemption is:
Ken’s take
An in-state GO gives the investor federal and state tax exemption. Trap A loses state exemption (out-of-state). Trap C is federally exempt but adds AMT preference. Trap D is federally taxable, although exempt from state tax.
A customer purchases a 5% municipal bond at 105, callable at par in 10 years and maturing in 20 years. According to MSRB rules, the dollar price displayed on the customer's confirmation should be calculated using:
Ken’s take
For a premium bond with an in-whole call, MSRB requires pricing to the lower yield - yield to call.
A customer buys a new issue municipal bond at par with a dated date of January 1 and a settlement date of January 15. The first coupon is due July 1. The customer pays accrued interest for:
Ken’s take
On a new issue, accrued interest runs from the dated date through the day before settlement (Jan 1-Jan 15).
A customer is long 100 shares of XYZ at $48 and writes 1 XYZ October 50 call at $3. If the call is exercised when XYZ is trading at $54, what is the customer's gain?
Ken’s take
Sold at strike $50 + premium $3 = $53; cost $48; gain $5 × 100 = $500.
The Options Clearing Corporation (OCC) is responsible for which of the following functions?
Ken’s take
OCC issues and guarantees performance on listed options.
A customer establishes the following position: long 1 XYZ January 40 put at $2 and long 100 shares of XYZ at $42. What is the breakeven point on the combined position?
Ken’s take
Married put: stock cost + put premium = 42 + 2 = $44.
A customer writes 1 XYZ April 50 put at $4. The put is exercised when XYZ is trading at $43. For tax purposes, the customer's cost basis in the resulting long stock position is:
Ken’s take
Strike $50 minus premium received $4 = $46 adjusted basis.
A customer is long 100 shares of ABC at $48 and is concerned about a near-term decline but does not want to sell. The strategy that hedges downside while preserving upside is:
Ken’s take
A protective put establishes a floor on losses while leaving upside intact. A covered call generates income but caps upside; writing a put adds downside risk; buying a call doesn't hedge an existing long position.
An options investor is short 1 XYZ Jul 40 put at $2. To close the position, the investor would:
Ken’s take
A short option is closed by buying the same series. Only the long holder may exercise; selling another put increases the short position; buying stock does not close the option position.
A customer buys 1 DEF August 50 call at $6 and writes 1 DEF August 60 call at $2. What is the customer's maximum potential gain?
Ken’s take
Bull call spread. Net debit = (6 − 2) × 100 = $400. Max gain = spread width − net debit = (60 − 50) × 100 − $400 = $600. Trap A is the max loss (net debit); trap C ignores the debit; trap D adds the debit instead of subtracting.
A customer establishes a long combination by buying 1 ABC June 40 call at $4 and buying 1 ABC June 50 put at $3. At expiration, ABC is trading at $35. The customer's overall result is:
Ken’s take
Call (40 strike) is OTM at $35, expires worthless: −$400. Put (50 strike) is ITM by $15: $1,500 intrinsic less $300 premium = +$1,200. Net = −$400 + $1,200 = $800. Trap D forgets the call premium loss; trap B double-counts the call premium against the put gain.
A customer wrote a covered call against owned stock. The stock has risen sharply, putting the call deep in-the-money. Before expiration, the customer wants to maintain the long stock position. The most appropriate action is to:
Ken’s take
Rolling up and out (closing the ITM short call, opening a higher-strike call further out) preserves the long stock and re-establishes premium-collection room. Trap A loses the stock. Trap C adds protection but doesn't address the assignment risk on the short call. Trap D rolls forward but doesn't move the strike out of the money — assignment risk persists.
Equity option position limits established by FINRA apply:
Ken’s take
Limits apply separately to the bullish side (long calls + short puts) and the bearish side (long puts + short calls). Trap B fixes a single number that ignores the tiered limits across underlyings. Trap C exempts retail customers from a rule that applies to all customers. Trap D collapses the two-sided structure.
A customer believes XYZ, currently at $30, will trade in a narrow range over the next three months but wants exposure if a large move occurs in either direction. Which strategy best matches the customer's view?
Ken’s take
A long straddle profits from a large move in either direction; the customer wants either-way exposure.
A customer who owns 500 shares of XYZ at a cost of $20 wants to generate income but is willing to part with the shares above $25. The customer asks the RR to recommend an appropriate strategy. The RR should suggest:
Ken’s take
Writing covered calls above market generates income; the customer accepts being called away above $25.
An investor buys 1 OEX 1850 call at $12 when the OEX is at 1846. At settlement the OEX closes at 1862 and the customer exercises the option. What does the customer receive?
Ken’s take
Index options settle in cash for the in-the-money amount x $100: (1862-1850) x $100 = $1,200.
A customer is short 100 shares of MNO at $50 and long 1 MNO Jul 55 call at $2. What is the maximum potential loss?
Ken’s take
Max loss = (strike - short price + premium) x 100 = ($55-$50+$2) x 100 = $700.
A customer is short 100 shares of YZ at $90 and short 1 YZ Apr 85 put at $4. What is the maximum potential gain?
Ken’s take
Max gain if stock <= 85 = (short price - strike + premium) x 100 = ($90-$85+$4) x 100 = $900.
A customer buys 1 XYZ 40 call at $5 and writes 1 XYZ 45 call at $3. At expiration XYZ is trading at $43. What is the customer's profit or loss?
Ken’s take
Net debit = $5 − $3 = $2. At $43 the long 40 call is worth $3 intrinsic; the short 45 call is worthless. Position value $3 − debit $2 = $1 × 100 = $100 gain. B ($200) is the max gain (spread width minus debit) reached only at/above $45. C ($200 loss) is the max loss, at/below $40. D ($300) forgets the debit and counts only the long-leg intrinsic value.
A customer buys 1 XYZ 55 call at $2 and buys 1 XYZ 45 put at $1 on stock trading at $50. The position is a:
Ken’s take
Long call and long put with DIFFERENT strikes (and out-of-the-money on both sides) = long strangle, cheaper than a straddle and needing a larger move to profit. A (straddle) requires the SAME strike — the near-synonym trap. C describes a same-strike combination, contradicting the different strikes given. D is a two-call directional spread, not a call-plus-put volatility play.
A company announces a 3-for-1 stock split. A customer who owned 200 shares purchased at $90 will, after the split, hold:
Ken’s take
Total basis preserved: $18,000 / 600 = $30.
A customer asks her registered representative to identify a feature of cumulative voting that benefits minority shareholders. The correct response is that cumulative voting:
Ken’s take
Cumulative voting lets a holder concentrate total votes (shares × seats) on fewer candidates.
A 5% convertible preferred stock with $100 par is callable at $106 and converts into 4 shares of common. The common stock is currently trading at $30 per share. The issuer announces a call. To maximize value, the holder should:
Ken’s take
Conversion value = 4 × $30 = $120 vs call value $106 — convert + sell beats accepting the call by $14. Trap A accepts the lower call price. Trap C uses the wrong mechanism (the issuer is not tendering for common). Trap D treats the call as optional; once announced, holders must convert or accept the call.
Which of the following securities is most likely to have NO principal risk?
Ken’s take
U.S. Treasuries are backed by the full faith and credit of the U.S. government and have effectively no principal default risk if held to maturity. (They retain market and reinvestment risk.)
A customer sells 100 shares of XYZ at a $1,000 loss. To claim the tax loss, the customer must avoid purchasing substantially identical securities within:
Ken’s take
The wash-sale rule looks back 30 calendar days and forward 30 calendar days from the sale date — a 61-day window. Trap B substitutes business days (the high-quality pivot — students often confuse calendar with business days). Traps C and D distort the count and direction of the window.
A dividend reinvestment plan (DRIP) allows shareholders to:
Ken’s take
DRIPs automatically apply each cash dividend toward additional shares (often without commission). Trap A and trap D both misstate tax treatment — reinvested dividends remain taxable in the year paid. Trap C invents a borrowing mechanism.
A customer holds 500 shares of common stock in a corporation that uses cumulative voting. There are four director seats up for election. The customer may cast votes in which manner?
Ken’s take
Cumulative voting gives votes equal to shares x seats (500x4=2,000), allocable as the holder chooses.
An RR is reviewing an institutional offering of 144A securities for a customer who is a registered investment adviser managing $250 million in pension assets. The customer is interested in purchasing the issue. The customer:
Ken’s take
Rule 144A securities may be sold to QIBs; an RIA managing $100M+ qualifies.
Under the intraday margin standards effective June 2026, the minimum equity required in a margin account used for day trading is:
Ken’s take
The $25,000 day-trading minimum was eliminated with the PDT framework on June 4, 2026; only the standard $2,000 margin account minimum applies. If you picked D, your study materials are out of date — and that's exactly why this question is here.
The minimum maintenance requirement under FINRA rules for a long margin account is:
Ken’s take
FINRA long maintenance: 25% of LMV.
A customer's long margin account has a current market value of $40,000 and a debit balance of $25,000. At what market value of the long stock would a maintenance call be triggered?
Ken’s take
Maintenance call when equity falls below 25% of LMV. Setting equity = 0.25 × LMV: LMV − $25,000 = 0.25 × LMV → 0.75 × LMV = $25,000 → LMV = $33,333. Trap A treats the debit balance itself as the trigger. Trap B is a near-miss without a clean derivation. Trap D moves in the wrong direction.
A customer opens a new short margin account by selling short 200 shares of XYZ at $40. Under Reg T at 50%, the customer must deposit:
Ken’s take
Reg T requires the greater of $2,000 or 50% of proceeds; 50% x $8,000 = $4,000 governs.
In an initial transaction, a customer sells short 200 shares of XYZ at $50. What is the resulting credit balance?
Ken’s take
Credit = short proceeds $10,000 + Reg T deposit $5,000 = $15,000.
A customer's long margin account shows LMV $40,000 and Debit $20,000. The market value rises to $50,000. What is the new SMA?
Ken’s take
New equity $30,000 - Reg T ($25,000) = $5,000 SMA.
A customer's long margin account shows LMV $40,000 and debit $24,000. At what market value will the account meet minimum maintenance?
Ken’s take
$24,000 / 0.75 = $32,000.
A customer's long margin account shows LMV $50,000 and Debit $20,000. The customer sells $10,000 of stock. What is the new debit balance?
Ken’s take
Sale proceeds reduce the debit: $20,000 - $10,000 = $10,000.
A customer owns a $1,000 par value 5% convertible debenture, convertible into common stock at $40. The conversion ratio is:
Ken’s take
$1,000 par per bond ÷ $40 conversion price = 25 shares per bond.
Which of the following risks is least applicable to a zero-coupon bond?
Ken’s take
No periodic coupons means no reinvestment risk.
A bond denominated in U.S. dollars and issued outside the United States is best classified as a:
Ken’s take
A Eurodollar bond is USD-denominated and sold outside the U.S. Trap A reverses the geography (Yankee = foreign issuer selling in the U.S. in USD). Trap C is the broader parent category — Eurobonds can be in any currency outside their home market. Trap D is an equity instrument, not debt.
A customer purchases 5 corporate bonds with a 6% coupon. The trade settles 60 days after the last interest payment date. How much accrued interest will the customer pay?
Ken’s take
Corporate bonds use a 30/360 day count. Per bond: $60 × 60/360 = $10. Five bonds: $50. Trap A computes only one bond. Trap B uses actual/365 (the Treasury convention) — $60 × 60/365 × 5 ≈ $49. Trap D is the full annual interest on five bonds.
Under the Trust Indenture Act of 1939, a public corporate bond issue must include:
Ken’s take
The TIA's core requirement is an independent trustee acting on behalf of bondholders to enforce the indenture. Trap B invents a federal guarantee; trap C invents a call-protection mandate; trap D overstates registration requirements that are governed by separate provisions of the Securities Act.
A customer asks her RR about the order of payment if a corporation declares bankruptcy. Among the following claims, the highest priority belongs to:
Ken’s take
Mortgage bondholders (secured) have first claim on collateral; unsecured/subordinated/preferred follow.
A customer holds a 4% corporate bond that has a YTM of 5.2%. Interest rates rise sharply, and new bonds of similar quality and maturity are issued at 7%. What is most likely to happen to the price of the customer's bond?
Ken’s take
Prices move inversely to rates; rising rates push the lower-coupon bond further below par.
A customer signs a letter of intent to reach a $50,000 breakpoint within 13 months but contributes only $42,000 by the end of the period. The fund will:
Ken’s take
LOI shortfall: fund liquidates escrowed shares to recover the higher load.
Which of the following describes the exchange privilege offered by some mutual fund families?
Ken’s take
Exchange privilege: switch within same fund family at NAV; tax event still occurs.
Compared to an open-end mutual fund, an ETF:
Ken’s take
Intraday trading at market prices is the core ETF feature. Each wrong choice attributes a mutual fund characteristic to the ETF: trap B reverses the pricing rule, trap C borrows the 1940 Act sales load cap, trap D borrows the 7-day redemption rule.
An investor wants exposure to U.S. equities with the lowest expense ratio and intraday tradability. The most appropriate vehicle is a:
Ken’s take
Broad-market index ETFs typically carry the lowest expense ratios and trade intraday. UITs trade but lack the liquidity, scale, and continuous-creation mechanism of ETFs.
ETFs are typically more tax-efficient than open-end mutual funds primarily because:
Ken’s take
In-kind creation/redemption transfers appreciated securities out of the fund without triggering taxable sales — that's what keeps ETF capital gains distributions low. Trap A invents a tax exemption. Trap C is false (ETFs do distribute dividends). Trap D invents a dividend exemption. The practical effect of the in-kind mechanism is that most capital gains are deferred until you sell your shares — but that's the result of low distributions, not a blanket deferral: dividends and any distributed gains are still taxed every year.
An RR is comparing two mutual funds with similar objectives for a customer. Fund A has an expense ratio of 0.85% and a 5% front-end load. Fund B has an expense ratio of 1.85% and no load. For a customer planning to hold for 15 years, the RR should generally recommend:
Ken’s take
Over long horizons, ongoing expenses compound; the 1% expense gap exceeds the 5% upfront load over 15 years.
A customer holds shares of a mutual fund that distributes a long-term capital gain in December. The customer's account is non-qualified and the customer reinvests the distribution. The customer's tax treatment is:
Ken’s take
Capital-gain distributions keep their long-term character and are taxed at LTCG rates regardless of holding period.
A customer's diversified equity portfolio has a beta of 1.20. If the broad market declines by 10%, the customer's portfolio will most likely:
Ken’s take
Beta of 1.20 = 20% more volatile; 10% × 1.20 = 12% decline.
A trustee managing assets under the prudent investor rule should evaluate investments based on:
Ken’s take
The Uniform Prudent Investor Act (UPIA) explicitly evaluates investments in portfolio context, not in isolation. Trap A describes the older 'prudent man' standard, replaced by UPIA — the high-quality pivot. Traps C and D fail the prudence test in opposite directions (too aggressive vs. too restrictive).
A 45-year-old self-employed customer earning $200,000 wants to maximize tax-advantaged retirement savings. The customer has no employees and has not yet established a retirement plan for the year. The most appropriate vehicle is:
Ken’s take
SEP-IRA allows up to 25% of compensation (or the annual cap), far exceeding traditional IRA limits.
A 30-year-old customer with a 6-month emergency fund and high job stability tells the RR she wants to 'aggressively grow' her IRA over the next 30 years. She has read about cryptocurrency and asks if she can put 100% of her IRA into a single cryptocurrency-focused fund. The RR should:
Ken’s take
Reg BI requires acting in the customer's best interest, including counseling against undue concentration over a 30-year horizon.
A customer in her mid-30s has been funding her Roth IRA with money market funds for 10 years. She asks if her current allocation is appropriate. The registered representative should MOST likely:
Ken’s take
A 30-year horizon argues for more growth; money market may lag inflation.
A registered representative recommends a complex multi-leg options spread to a customer who just opened her first brokerage account last week and has no investment experience. This recommendation is MOST likely problematic because:
Ken’s take
A complex multi-leg spread is inconsistent with a brand-new customer's lack of experience.
A registered representative recently became licensed and has limited experience with a particular investment product a customer is asking about. The MOST appropriate course of action is to:
Ken’s take
Do due diligence and consult a senior RR/supervisor to form a reasonable basis before recommending.
A customer who purchases a Ginnie Mae pass-through security receives:
Ken’s take
GNMA pass-through: monthly P&I from underlying mortgage pool.
In a sequential-pay collateralized mortgage obligation (CMO) that includes a planned amortization class (PAC) tranche, the PAC tranche is designed to:
Ken’s take
A PAC tranche delivers a predictable cash flow within a stated prepayment-speed band. Trap D describes the companion (support) tranche, whose role is to absorb prepayment volatility so the PAC stays stable. Trap B describes a sequential-pay first tranche. Trap A inverts risk and yield — PACs are lower-yield because they're more stable.
Treasury STRIPS are:
Ken’s take
STRIPS (Separate Trading of Registered Interest and Principal of Securities) are zero-coupon Treasuries created by separating coupon and principal payments. Holders accrete interest annually for tax purposes (phantom income).
Which agency directly guarantees timely payment of principal and interest on its mortgage-backed pass-through certificates?
Ken’s take
GNMA pass-throughs carry the full faith and credit guarantee of the U.S. government.
During the annuity payout phase of a variable annuity, the number of annuity units the contract holder receives each month:
Ken’s take
Annuity unit count is fixed at annuitization; their dollar value fluctuates.
Which of the following customers is least suitable for a non-qualified variable annuity?
Ken’s take
A customer with unused qualified plan capacity (especially with potential employer match) should fund those tax-advantaged accounts before paying for the higher-cost tax deferral inside a non-qualified VA. Traps A, B, and D each describe a customer for whom VA tax deferral is at least defensible.
The portion of a variable annuity contract that is invested in sub-accounts of common stocks and bonds is the:
Ken’s take
Separate-account assets fluctuate with sub-account performance. The insurer's general account holds fixed-annuity and other guaranteed obligations.
A 62-year-old customer asks the RR to explain how the death benefit on her variable annuity is taxed when paid to her beneficiary. The RR should explain that the beneficiary will:
Ken’s take
The beneficiary owes ordinary income tax on the gain above basis; VAs get no step-up at death.
A company reports earnings per share of $4.00 and pays an annual dividend of $1.20. The dividend payout ratio is:
Ken’s take
$1.20 / $4.00 = 30%.
A yield curve that slopes downward, with short-term rates above long-term rates, is best described as:
Ken’s take
An inverted yield curve has short rates above long rates and is often watched as a recessionary signal. Trap A is the upward-sloping normal curve. Trap B has short and long rates roughly equal. Trap D describes a curve where the spread is widening — a directional move, not a shape.
A customer asks the RR to explain a company's quality of earnings. The customer is reviewing two companies in the same industry; both report identical EPS of $4. Company A's earnings are heavily dependent on a one-time asset sale; Company B's earnings come from recurring operations. The RR should explain that:
Ken’s take
Recurring operating earnings are higher quality than one-time gains.
In a limited partnership, a limited partner who actively participates in the management of the partnership risks:
Ken’s take
Limited partners who participate in management can be treated as general partners — unlimited liability.
'Phantom income' in a direct participation program refers to:
Ken’s take
Phantom income is the tax bite that arrives without cash to pay it — often after the crossover point in a DPP, when the partnership starts producing taxable income that's reinvested or otherwise withheld from distribution. Trap A reverses the situation. Traps C and D invent tax characterizations that don't apply.
A general partner of a real estate DPP wants to take additional limited partner interests in a competing program. Under the partnership agreement and standard practice, the GP must:
Ken’s take
GP investments in competing programs create conflicts and typically require LP consent.
To qualify as a real estate investment trust under federal tax law, the entity must distribute to shareholders at least:
Ken’s take
REITs must distribute at least 90% of taxable income to maintain pass-through status.
An RR is recommending a non-traded REIT to a 70-year-old customer who relies on the principal for living expenses. The RR should weigh against this recommendation primarily because non-traded REITs:
Ken’s take
Non-traded REITs lack a secondary market and restrict redemptions - inappropriate for near-term liquidity needs.
A SIMPLE IRA differs from a SEP-IRA principally in that:
Ken’s take
SIMPLE IRAs allow employee salary-reduction contributions plus an employer match; SEP-IRAs are funded entirely by the employer (up to a percentage of compensation).
Which of the following is generally taxable to a custodian-account beneficiary, not the donor or custodian?
Ken’s take
UGMA accounts use the minor's tax ID, with income taxed to the minor (subject to kiddie-tax rules above thresholds).
A customer buys 200 shares of XYZ at the market on a Friday morning. Under regular-way settlement for U.S. equities, the customer must have funds available to settle the purchase no later than:
Ken’s take
Regular-way settlement for U.S. equities, corporate bonds, and most municipal trades is T+1 business day (effective May 28, 2024). A trade executed Friday settles the next business day — Monday — because Saturday and Sunday are not business days. Funds must be available by settlement.
A customer enters a market order to buy 500 ABC. The trading system shows a regulatory halt on ABC. The representative should:
Ken’s take
When a regulatory halt is in effect, no executions occur. The representative should wait for the halt to lift, communicate with the customer about the post-halt price, and obtain confirmation of the order before executing.
A registered representative inadvertently misquotes a stock to a customer. The customer subsequently buys at the actual market price. The customer is:
Ken’s take
A misquote does not change the executed price. The customer is obligated for the actual execution. The firm and rep may have separate liability concerns, but the customer must settle at the executed price.
A customer holds long stock with a market value of $20,000 and a debit balance of $12,000. The market value at which the account would be at minimum maintenance is:
Ken’s take
Minimum maintenance for a long margin account = debit ÷ 0.75 (the 25% FINRA maintenance rule). $12,000 ÷ 0.75 = $16,000. At that market value, equity ($4,000) is exactly 25% of market value. Multiplying rather than dividing yields $9,000; using an 80% house requirement instead of the 75% FINRA figure yields $15,000.
Trade confirmations sent to retail customers must, at a minimum, include:
Ken’s take
SEC Rule 10b-10 requires confirmations to include trade and settlement dates, capacity (agent or principal), price, quantity, and commission/markup details (with disclosure of mark-up for certain riskless principal trades).
An IOC order to buy 8 ABC Mar 50 calls at a $3.50 limit is entered. Offers in the crowd are for 5 contracts at $3.50, with the next offers at $3.65. With no other sellers willing to fill at the limit, the result is:
Ken’s take
An immediate-or-cancel order fills any portion that can execute immediately at the limit (or better) and cancels the remainder. 5 contracts lift at $3.50; the remaining 3 cannot fill at the $3.50 limit and are cancelled. Fill-or-kill (FOK) would have cancelled the entire order without partial execution; all-or-none (AON) would have waited for full-size execution.
Under FINRA rules, customer account statements must be sent at least:
Ken’s take
FINRA Rule 2231 and SEC Rule 17a-5 require broker-dealers to send customer account statements at least quarterly. Many firms send monthly statements when there is activity, but that is industry practice — not a regulatory requirement.
An ACATS transfer of customer assets between broker-dealers must generally be validated and completed within:
Ken’s take
Under FINRA Rule 11870 / NSCC ACATS, the carrying firm must validate or take exception within 1 business day of receiving the TIF, and the transfer must complete within 3 business days of validation.
An institutional customer fails to confirm or affirm a trade. The carrying broker-dealer would issue:
Ken’s take
When details cannot be reconciled, brokers exchange DK notices to repudiate or rectify the trade. ACATS, regulatory halts, and TRACE address different scenarios.
A written customer complaint received by a registered representative must be:
Ken’s take
Written complaints must be promptly delivered to a registered principal and logged in the firm's complaint records (FINRA Rule 4530 imposes specific reporting requirements for certain types of complaints).
A long margin customer holds $20,000 of marginable stock with a $10,000 debit balance. The customer purchases an additional $4,000 of marginable stock under Reg T at 50%. The Reg T initial requirement on the new purchase is:
Ken’s take
Reg T initial requirement on long margin equity = 50% of purchase price = $2,000. (House and FINRA maintenance rules then govern the ongoing equity requirement.)
A customer wishes to short 100 shares of XYZ. Before executing, the firm must ensure that:
Ken’s take
Reg SHO Rule 203 requires the firm to locate borrowable shares (or reasonable grounds to believe shares can be borrowed) before executing a short sale. The uptick rule was eliminated in 2007 (a price-test 'circuit-breaker' uptick exists for sharply declining stocks).
How many market makers must a broker-dealer contact to determine a fair and reasonable quote in a non-NMS stock with limited quotation activity?
Ken’s take
FINRA's three-quote rule, applicable to non-NMS / non-OTC-Reporting-Facility-eligible securities with limited quotations, requires the firm to contact and document quotes from at least three market makers (or other independent sources).
A customer has signed a hypothecation agreement. This document permits the firm to:
Ken’s take
The hypothecation agreement allows the firm to pledge (rehypothecate) the customer's margin securities as collateral for bank loans that finance the customer's debit. A separate loan-consent agreement is needed before the firm may lend out customer securities.
Your result
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