Series 7 Bonds & Debt Securities Practice Exam

25 questions covering bond pricing, yield relationships, duration, Treasury securities, municipal bonds, CMOs, and more. Each question mirrors the style and difficulty of the actual FINRA Series 7 Top-Off Exam.

How to use this exam: Read each question carefully — answer choices are intentionally close. After submitting, you’ll see the correct answer and a plain-English explanation.

1 / 25

Which of the following is TRUE about Treasury bills?

They pay semiannual interest

They are issued at par and mature at a premium

They have maturities up to 10 years

They are issued at a discount and mature at par

2 / 25

A bond trades at 105 and is callable at 102. Yield to call is:

Lower than yield to maturity

Higher than yield to maturity

Same as yield to maturity

Same as nominal yield

3 / 25

TIPS adjust based on:

Fed funds rate changes

LIBOR movements

10-year Treasury yield

Changes in CPI

4 / 25

A bond's coupon rate is 5% and it's trading at a discount. Which yield relationship is correct?

YTM > current yield > coupon

Coupon > current yield > YTM

Current yield > YTM > coupon

All three yields are equal

5 / 25

A corporate bond trade is executed on Monday. When does settlement occur?

Monday (same day)

Tuesday (T+1)

Wednesday (T+2)

Thursday (T+3)

6 / 25

Which is backed by the full faith and credit of the U.S. government?

GNMA pass-throughs

FNMA pass-throughs

FHLMC pass-throughs

SLMA bonds

7 / 25

A New York resident buys a New York State municipal bond. The interest is:

Federal taxable, state exempt

Federal exempt and state exempt

Fully taxable at all levels

Federal exempt, state taxable

8 / 25

A municipal revenue bond's debt service coverage ratio measures:

Credit rating level

Tax collection efficiency

Revenue vs. expenses

Net revenues vs. debt service

9 / 25

A bond convertible at $25 means:

Each bond converts into 25 shares

The bond is worth 25% of par

Each $1,000 bond converts into 40 shares

Conversion happens at a stock price of $25

10 / 25

Treasury notes have maturities of:

Up to 1 year

1 to 3 years only

10 to 30 years

2 to 10 years

11 / 25

In a plain vanilla sequential-pay CMO, which tranche receives principal first?

Tranche A

PAC tranche

Z tranche

Companion tranche

12 / 25

A portfolio manager wants less interest rate risk. She should buy bonds with:

Shorter maturity and higher coupons

Longer maturity and higher coupons

Shorter maturity and lower coupons

Longer maturity and lower coupons

13 / 25

A 5% convertible bond has a conversion price of $50. The stock trades at $60. The bond's parity value is:

$1,000

$1,100

$1,200

$500

14 / 25

Interest rates rise 2%. Which bond loses the MOST market value?

5-year bond, 8% coupon

20-year bond, 4% coupon

20-year bond, 8% coupon

5-year bond, 4% coupon

15 / 25

A normal (positive) yield curve indicates:

Short-term rates exceed long-term rates

All maturities yield the same

Long-term rates exceed short-term rates

The economy is in recession

16 / 25

Eurodollar bonds are:

Denominated in euros

U.S. dollar bonds issued outside the U.S.

European bonds sold in the U.S.

Bonds from the European Central Bank

17 / 25

A bond's coupon rate equals its YTM. The bond is trading:

At a premium to par

At a discount to par

Below its call price

At par

18 / 25

As the coupon rate decreases on a bond with fixed maturity, duration:

Decreases

Stays the same

Varies with credit only

Increases

19 / 25

A debenture bondholder's claim is based on:

A first mortgage on real property

Specific equipment pledged as collateral

A sinking fund held in escrow

The general credit of the issuer only

20 / 25

Accrued interest on Treasury bonds uses:

30/360

Actual/actual

Actual/360

30/365

21 / 25

A hospital revenue bond defaults. Bondholders' primary claim is on:

Revenues generated by the hospital

The municipality's property tax receipts

The state's general fund

The underwriter's guarantee

22 / 25

Which best describes how TIPS protect investors against inflation?

The coupon rate adjusts upward with CPI

The maturity date shortens as inflation rises

They are exempt from federal income tax

The principal adjusts with CPI; the coupon rate stays fixed

23 / 25

Which CMO tranche offers the MOST predictable cash flows?

Z-tranche

Companion tranche

PAC tranche

IO tranche

24 / 25

A normal yield curve shows:

Long-term yields higher than short-term

Short-term yields higher than long-term

All maturities at the same yield

Declining yields over time

25 / 25

General obligation bonds are backed by:

The full taxing authority of the issuer

Revenue from a specific municipal project

A pledge of U.S. government securities

A letter of credit from a bank

Your score is

The average score is 41%

Series 7 Bonds & Debt Securities Practice Exam

Keep Studying