Series 7 Study Guide: Practice Questions for the Series 7 Exam

What is the Series 7 exam?

In a nutshell, passing the Series 7 exam qualifies you to hold the title of General Securities Registered Representative. This allows you to solicit and sell securities products, including stocks, bonds, options, limited partnerships, and so on.

The Series 7 serves a valuable purpose because it protects the investing public. It ensures that the financial advisors and registered representatives who sell securities have mastered the skills and general knowledge that they need to have to properly serve their clients.

The Series 7 exam is a 250-question (plus 10 “pre-test” questions), computer-based exam (meaning you input your answers on a computer) that’s given at different test centers throughout the U.S. It’s administered by FINRA (the Financial Industry Regulatory Authority) and it is six hours long. If you manage to score a 72 or higher, congratulations! You will have passed the exam.
 

How hard is the Series 7?

The Series 7 exam is harder than you want it to be, but easier than you think it’ll be. If you can keep that thought in your mind, it will serve you well.

If you read varying online forums, you might get the impression that the Series 7 exam is incredibly difficult. While it’s definitely not a cakewalk, it’s not impossible either. After all, thousands of people before you have passed it with flying colors. The biggest determinant of your success will be your ability to prepare, study, and practice the material before the exam itself. The more practice you have, the better. That’s why it’s important to take Series 7 practice exams and answer the practice questions that go along with them.

The Series 7 pass rate is only 65%. If you account for the people who take the exam multiple times, it means the first-time pass rate is below this number.  However, that’s still good news; CFA exams have an even more dismal pass rate of 46%.

Be careful where you get your advice when it comes to the Series 7 exam. Those giving you advice might have taken the Series 7 in the 90s, when exam questions were drastically different. The questions have evolved over time, and today they include more of an emphasis on suitability.
 

How much does the Series 7 exam cost?

As of February 2017, the Series 7 exam costs $305.00.
 

Do you need a sponsor for the Series 7?

 Yes. You obtain sponsorship for the Series 7 exam by being employed at a FINRA member firm or a self-regulatory organization (SRO). After all, you’ll need to pass the Series 7 in order to legally perform certain tasks (like selling securities) as an employee.

This causes a little catch-22; you may have difficulty getting a job at a firm because it requires a Series 7, yet you need a job to get it. One of the ways to get a sponsor is to start surfing the job boards – in many cases, firms who do sponsor will say so right in their job descriptions. Most “assistant” type job titles are willing to sponsor, while those that require several years of experience tend to assume that you already have your Series 7. Of course, you could always make an anonymous phone call and ask if they’ll sponsor you.

Another way to find a sponsor for the Series 7 is to network your butt off. You’re most likely to hear about good job leads from other financial services professionals. Go to any events you can find. The connections that you form when networking are the keys to building your career.

If you’re caught in this catch-22, be ready to take the Series 7 at any moment, since you don’t know when opportunity will strike. You do this by staying sharp, reading study guides, and taking Series 7 practice questions. Not only will you be able to take the exam as soon as you find a sponsor, but you’ll be knowledgeable during your job interview with them. 

Get ready for tons of studying!

​How should you prep for the Series 7?

In addition to answering tons of practice questions, here are some tips for passing the Series 7:

• Actually take the time to study. When I was taking my Series 7, I studied for about 21 hours per week. That broke down to three hours per day, seven days per week. The recommended prep time for the Series 7 exam is 80-100 hours. That means if you only have a month to prepare, you should be studying three hours per day, every day.

 

• Learn the concepts. If you try to memorize everything word-for-word, you’ll likely fail. The people who try to use brute force to memorize formulas are usually the ones who get less than a passing grade. If you understand the big-picture concepts, you can apply them to the different questions that come your way.

 

• Don’t over-think the questions. There are a lot of suitability questions on the Series 7 now, which makes a lot of people read too far into the questions. They think, “Yeah, but what if he/she is of retirement age?” or something like that. If the question doesn’t EXPLICITLY state something, don’t assume it to be true. Don’t be afraid to take a question at face value, even if it seems too easy.

 

• Work out the equations on paper, not in your head. The Series 7 is already difficult enough. Don’t make it harder on yourself by trying to run through the equations in your head. I personally advise you to jot down the more difficult equations as soon as you receive permission to do so – this is called a “brain dump”.

 

• Train for it. In addition to reading study guides, you should immerse yourself into practice tests so that you are ready for the six hours it will take. This is one mistake I made. I studied for the Series 7 in bite-sized chunks. After a few hours, I started getting restless and couldn’t focus as much. If I took the time to build up my test-taking endurance, this wouldn’t have happened. You need to train like an athlete to get your mind and body used to such a long testing period.

 

• Aim higher than just passing. Yes, you only need a 72 to pass the exam, but if you’re getting 70s on your practice tests, you’re cutting it too close. You need to be hitting 80% and above in order to go in there knowing that you can pass. The bigger your margin of error, the better.

 

• Don’t think that you can stop studying because your score went up. It’s a mistake to get comfortable and cut back on studying. If you don’t do practice problems every day, you will forget. It’s really a “use it or lose it” type deal.

 

• Don’t use a study group. I never understood why people want to study in groups. You want to study the information you struggle with, and chances are that people in your group struggle with different things. Even if everyone is struggling with the same thing, it means they can’t help you. Ditch the study group and study for the Series 7 exam on your own. 

Avoid study groups.

​What’s the breakdown of the Series 7 exam?

The Series 7 exam is computerized and closed-book, which means you can’t use any notes. It’s six hours long and is divided into two three-hour sessions. You have to take a mandatory break during the sessions. While you can take bathroom breaks at any time, the clock will continue to tick away. I strongly caution you to skip the diuretic triple espresso latte.

While only 250 questions count towards your final score, you’ll have to answer ten additional (unidentified) questions that are purely experimental. If you see a question on the Series 7 that doesn’t seem even remotely similar to anything you’ve studied, it’s probably one of those experimental questions.

One of the cool things about the Series 7 (if “cool” and “Series 7” can even be used in the same sentence) is that you don’t have to wait weeks to get your score. Right after taking the exam, the system calculates your score and gives you a result. You’ll either see it right on your computer screen or a test center employee will give it to you.

The Series 7 exam is structured around five major functions:

1. Function one is “seeks business for the Broker Dealer through customers and potential customers”. This is 27% of the exam.
2. Function two is “evaluates customers’ other security holdings, financial situation and needs, financial status, tax status and investment objectives”. This is 11% of the exam.
3. Function three is “opens accounts, transfers assets and maintains appropriate account records”. This is 11% of the exam.
4. Function four is “provides customers with information on investments and makes suitable recommendations”. This is 28% of the exam.
5. Function five is “obtains and verifies customers’ purchase and sales instructions, enters orders and follows up.” This is 23% of the exam.

You’ll want to answer plenty of practice questions about the following topics:

• Fiduciary accounts
• Roth IRAs and traditional IRAs
• Insider trading
• SEC Act of 1934
• Margin calls
• Dividends
• Warrants
• SIPC
• Underwriting securities
• Bond yield calculations
• Portfolio analysis
• Direct participation programs
• Rules and regulations
• And more

I can’t stress the importance of using Series 7 practice questions. They will help you gear up for test time and gain the confidence you need to pass. Here are some sample practice questions for you:
 

1. Investments that move in the opposite direction of the economic cycles are known to be counter-cyclical. Investments that are known to be counter-cyclical include:

A) Gold stock
B) Utility stock
C) Food company stock
D) Pharmaceutical stock
 

2. A corporate bond’s indenture has all of the following EXCEPT:

A) The credit rating
B) The maturity date
C) The name of the trustee
D) The coupon rate

 
3. Joe Smith is a wealthy investor who is in the highest income bracket. He’s looking for an investment that would limit his tax liability and put him on equal footing with investors in low income-tax brackets. Which of the following securities would you most likely recommend?

A) CMOs
B) High-yield bonds
C) Municipal bonds
D) Hedge funds
 

4. The trading volume for some large institutional orders is concealed from the public. What’s this called?
A) Fourth market trades
B) Dark pools of liquidity
C) Third market trades
D) A violation
 
5. When a corporation wants to open a margin account with a broker-dealer, which of the following is required?
I. A corporate resolution from the board of directors.

II. A copy of the corporation’s trust indenture.
III. A copy of the corporation’s charter or by-laws.
IV. An agreement that the stock of the corporation will not be traded by the broker-dealer as a market maker.

A) I, II
B) I, III
C) II, IV
D) I, II, III, IV
 
Answer Key

1. A
2. A
3. C
4. B
5. C