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Series 7 Exam
Series 7 Test
The Series 7 Exam is comprised of 250 multiple choice test questions. The time limit is 6 hours. 70% is the grade needed to pass the test. This license is for selling securities in the primary or secondary market of an NASD firm. The Series 7 covers securities such as Stocks, Bonds, Options, Mutual Funds, and Retirement Plans. The Exam is offered daily at hundreds of national test centers.
Sample Questions:
1. A customer should purchase long term bonds when a customer thinks:
A) Long term interest rates are going to decrease
B) Short term interest rates are going to decrease
C) Long term interest rates are going to increase
D) Short term interest rates are going to increase
Correct answer is A: A customer should buy long term bonds when they feel interest rates are going to decline after they purchase the bond. When interest rates decline, bond prices go up. The customer’s bond price would rise in value if this occurs. Short term rates do not necessarily affect long term bond prices.
2. A corporation wishing to open a new margin account would need to provide the firm their:
I Corporate resolution
II Corporate charter
III Income statement
IV List of issued securities
A) I, II and III
B) I and II
C) II and IV
D) II, III, and IV
Correct answer is B: Corporate margin accounts require the corporate resolution and charter. An income statement is not required, nor is the list of outstanding securities issued by the company.
3. A customer owns 100 shares of GHT at $56. The customer is concerned about a steep decline in the stock over the next 2 months. He wants to limit his loss on the stock to a specific price using options. A good recommendation here would be to:
A) Buy a call option
B) Sell a call option
C) Buy a put option
D) Sell a put option
Correct answer is C: A put option allows the holder to sell the stock at a specific price.
4. A bond is trading at $1160, and has a conversion price of $50. At which price would the stock need to trade to be equal to the current bond price?
A) 23
B) 58
C) 50
D) 54
Correct answer is B: The first step is to convert the bond. You must always use par value. Divide the par value (1000) by the conversion price ($50). This equals the amount of shares that will be created (20). To come up with the “parity price” that the stock must trade at, do one of 2 things: Divide $1160 by 20, which equals 58 or multiply 20 by each answer choice until the bond price is equaled. Answer is 58.
5. A customer buys 2 ADF SEP 50 Calls for $300 each. What is the customer’s maximum loss?
A) $300
B) $600
C) $4700
D) Unlimited
Correct answer is B: The maximum loss for any option holder is the total initial cost (Premium). The worst case scenario is that the options expire worthless. The customer bought 2 options for a total of $600. The $600 is the maximum loss.
Series 7 Books and CD Study Material
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