FINRA Series 7 practice test and sample questions

How to use this original practice set

These are original practice questions, not FINRA exam items. They cover all four functions and mix product facts, calculations, customer reasoning, and rules. Answer before reading the explanation. For each item, identify what is asked, the controlling fact, and why the closest distractor is wrong. The actual exam presents 130 items, including five unscored pretest items, and allows 3 hours 45 minutes.

Questions

1. Customer liquidity

A customer plans to use most savings for a home purchase in nine months. The customer asks about a partnership with a projected tax benefit and a multi-year resale restriction. What is the key recommendation concern?

1. The liquidity need conflicts with the resale restriction.
2. Tax benefits make the investment appropriate regardless of timing.
3. The customer’s age alone decides the investment.
4. Projected return is guaranteed if the partnership meets its target.

Answer: A. The cash need is due in nine months, while the partnership may not be resalable for years. Tax treatment does not create liquidity. Age alone cannot replace the profile, and projected returns are not guaranteed. The candidate should clarify the required amount and timeline before comparing liquid alternatives.

2. Fund NAV

An open-end fund has net assets of 48 million dollars and 4 million shares outstanding. Ignoring sales charges, what is NAV per share?

1. 8 dollars.
2. 12 dollars.
3. 48 dollars.
4. 192 dollars.

Answer: B. NAV is net assets divided by shares: 48 million divided by 4 million equals 12 dollars. Eight divides by an unsupported share count. Forty-eight confuses total assets with per-share value. One hundred ninety-two multiplies instead of divides. Confirm that liabilities are already reflected in net assets.

3. Current yield

A 1,000-dollar par bond pays 50 dollars yearly and trades at 920 dollars. What is current yield?

1. 5.00%.
2. 5.43%.
3. 8.00%.
4. 13.04%.

Answer: B. Current yield is annual interest divided by current market price: 50 divided by 920 is about 5.43%. Five percent is coupon rate using par. Eight percent divides by the 80-dollar discount. Thirteen percent incorrectly treats the discount as annual interest. Yield to maturity would also include price accretion and time.

4. Long call payoff

A customer buys one XYZ 40 call for a 2.50-dollar premium. At expiration XYZ is 46 dollars. What is profit before transaction costs?

1. 150 dollars.
2. 250 dollars.
3. 350 dollars.
4. 600 dollars.

Answer: C. Intrinsic value is 46 minus 40, or 6 dollars per share. Subtract the premium for 3.50 dollars per share, then multiply by 100 shares: 350 dollars. One hundred fifty uses incorrect arithmetic. Two hundred fifty is premium cost. Six hundred ignores the premium and reports intrinsic value.

5. Municipal repayment

A city issues a revenue bond to finance its water system. Which factor is most directly tied to repayment?

1. General taxing power regardless of the water system.
2. Pledged water-system revenues and bond indenture protections.
3. The market value of water department stock.
4. A federal guarantee applying to every municipal issue.

Answer: B. Revenue bonds rely on pledged revenues and the bond documents. General taxing power is characteristic of a general obligation pledge. This scenario does not involve department common stock, and municipal bonds are not all federally guaranteed. Read the stated security rather than assuming every municipal bond has the same source of payment.

6. Order type

A customer instructs the representative to buy 200 shares at no more than 35 dollars per share. Which order reflects that limit?

1. Market order to buy 200 shares.
2. Buy limit order at 35 dollars for 200 shares.
3. Sell limit order at 35 dollars for 200 shares.
4. Market-on-close order without a price condition.

Answer: B. The customer is buying and sets a maximum price, so this is a buy limit order. It may not execute if the price does not reach 35 or better. A market order does not ensure that price. A sell order reverses the side, and market-on-close omits the limit.

7. Account authority

A person calls to trade in a customer account and says they are a relative. The account file shows no trading authority. What should the representative do first?

1. Accept the order because relatives may trade for one another.
2. Verify the person’s authority under firm procedures.
3. Open another account and transfer the securities.
4. Accept the trade now and ask for documents afterward.

Answer: B. FINRA Rule 2090 requires reasonable diligence to know essential customer facts and the authority of people acting for the customer. Family relationship does not automatically grant authority. Opening another account does not resolve the issue, and later documentation does not replace required verification.

8. Cumulative preferred

An issuer skips a dividend on cumulative preferred shares. What generally happens to the unpaid dividend?

1. It accumulates and must be addressed before common dividends resume.
2. It compounds automatically on noncumulative preferred shares.
3. Common shareholders receive it first.
4. Both share classes have identical dividend rights.

Answer: A. Cumulative preferred provisions generally carry skipped dividends forward, and those arrears are addressed before common dividends. Noncumulative preferred dividends are generally not carried forward if omitted. Common shareholders do not take priority, and share classes can have different rights.

9. Issuer concentration

A customer owns a large amount of one company’s stock and earns most employment income from that company. The customer wants to buy its debentures too. What should be evaluated?

1. Combined issuer concentration and ability to bear a company-specific loss.
2. Only whether the coupon exceeds the stock dividend.
3. Whether debt removes all issuer risk.
4. Whether purchase occurs just before the next coupon date.

Answer: A. Stock, employment income, and debt from one company can concentrate the customer’s financial exposure. Debt has different priority from equity but remains exposed to issuer credit risk. Coupon comparison and timing do not replace profile analysis.

10. Public communication

A representative wants to distribute promotional material for a new securities offering. What should be established before distribution?

1. That the material meets applicable offering-stage rules and firm review requirements.
2. That the offering is guaranteed because the issuer filed with the SEC.
3. That electronic delivery avoids communication requirements.
4. That every prospectus can be distributed at any time.

Answer: A. Offering-stage restrictions, communication standards, approvals, and disclosures apply. Filing is not a guarantee or proof that an offering is effective. Digital delivery does not remove the rules. Different offering documents serve different purposes and can be used only under the conditions that apply.

Review the set

This ten-question set is only a sample of the official outline and cannot establish readiness by itself. If you missed a calculation, write the formula and denominator. If you missed a recommendation, list objective, horizon, liquidity, risk, and concentration. If you missed an operations question, identify the instruction, authority, and required sequence.

Review guessed correct answers as well as mistakes. Record the concept, error cause, and why the nearest distractor fails. Revisit the idea later using a new question. Repeating a familiar stem can build recognition without teaching transfer. Use mixed timed practice as you approach the exam; average pace is about 104 seconds per presented item.

The FINRA exam has no penalty for guessing, and five pretest questions are unidentified. Answer every question rather than trying to identify the unscored items. These examples are not official questions, do not reproduce protected FINRA items, and do not predict a passing result.

Sources

FINRA’s Series 7 Content Outline sets the function scope, and FINRA’s qualification-exam page lists the scored count and duration. These original examples illustrate selected concepts and are not a full-length practice test.

11. Covered call risk

An investor owns 100 shares and writes one call against them. Which statement best describes the position?

1. The premium provides limited income, but upside above the strike can be capped.
2. The position guarantees protection against any stock decline.
3. The writer has the same rights as the call buyer.
4. The position has unlimited upside after the strike.

Answer: A. A covered call combines long shares with a short call. The premium lowers the effective cost, but if the stock rises above the strike the shares may be called away, limiting upside. The premium is only a small cushion against a larger decline. The writer has an obligation, not the buyer right.

12. Municipal bond analysis

A revenue bond indenture requires a debt service reserve and limits additional bonds. What do these provisions primarily provide?

1. Protective covenants and support for payment reliability.
2. A guarantee that market value cannot decline.
3. A right for the representative to change the customer order.
4. An exemption from all issuer credit risk.

Answer: A. Reserve and additional-bonds provisions are protections described in the indenture and can support repayment quality. They do not prevent market price changes or eliminate credit risk. The customer order has no relation to the bond covenant.

13. Open-end fund pricing

An investor submits an order to redeem open-end fund shares after the market closes. What price generally applies?

1. The next calculated NAV under forward pricing, less any applicable redemption charge.
2. The last intraday exchange price guaranteed at the moment of the request.
3. The original purchase NAV regardless of current value.
4. A price selected by the representative.

Answer: A. Open-end fund transactions use forward pricing, so an order receives the next calculated NAV after receipt under the applicable procedures and charges. The investor does not lock the previous market price, and the representative cannot choose a price.

14. Option buyer maximum loss

A customer buys one listed put for a premium of 1.80 dollars. Assuming a standard 100-share contract, what is the maximum loss before costs?

1. 18 dollars.
2. 100 dollars.
3. 180 dollars.
4. Unlimited.

Answer: C. The buyer pays 1.80 dollars per share times 100 shares, or 180 dollars. The option can expire worthless, which is the maximum loss for the buyer. Eighteen omits a zero, 100 confuses the share multiplier with dollars, and unlimited describes neither the put buyer nor this limited-premium position.

Use item explanations to sharpen your method

Notice that several questions require more than a memorized definition. The customer liquidity scenario weighs a time constraint against lockup. The concentration problem combines securities and employment exposure. The bond-covenant item asks what protections do and do not guarantee. In each case, state both the relevant benefit and the limitation. Series 7 distractors often present a true feature as if it resolves every customer concern.

For numerical questions, write the input units. NAV uses total net assets over shares; current yield uses yearly coupon dollars over current market price; option premium is quoted per share and scaled by contract size. A wrong denominator or missing multiplier can produce a plausible answer, so estimate the direction before choosing.

Try the full set in a timed block after reviewing explanations once. A short sample is not a mock exam, and ten or fourteen questions do not reproduce the breadth of 125 scored items. Use it to find concepts to practice, then test those concepts again with different numbers and customer circumstances.