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Series 7 General Securities
Representative Exam 2026/2027 All-
Inclusive Certification Study Guide:
Extensive Practice Questions,
Complete Test Bank Review, Detailed
Knowledge Assessment, and Final
Exam Prep Manual
Question 16
Question 1
A broker-dealer sells 500 shares to a customer from securities held in the firm’s own
inventory. In what capacity is the broker-dealer acting?
A. Agent
B. Principal
C. Trustee
D. Transfer agent
Correct Answer: B. Principal
Rationale: A firm acts as principal when it buys from or sells to a customer using its
own inventory. It may earn a markup or markdown in the transaction. An agent
arranges a trade between parties and charges a commission. Trustees and transfer
agents perform administrative or fiduciary functions rather than taking the opposite
side of a securities trade.
Question 2
A self-employed consultant wants a retirement plan that is easy to establish and allows
contributions substantially larger than those generally available through a traditional
IRA. Which plan should be considered?
A. SEP IRA
B. Coverdell ESA
C. SIMPLE IRA funded only by employees
D. Section 529 plan
Correct Answer: A. SEP IRA
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Rationale: A Simplified Employee Pension, or SEP IRA, is commonly used by self-
employed individuals and small businesses because it combines simple administration
with relatively high employer contribution limits. Contributions may generally reach
25% of compensation for eligible employees, subject to tax-law limits. Coverdell and
529 plans fund education, while a SIMPLE IRA generally permits lower contributions.
Question 3
A listed option series shows open interest of 18,000 contracts at the end of the trading
day. What does this figure represent?
A. The number of contracts traded during that day
B. The number of contracts exercised during that day
C. The number of outstanding contracts that remain open
D. The maximum number of contracts that may be written
Correct Answer: C. The number of outstanding contracts that remain open
Rationale: Open interest measures option contracts that remain outstanding and have
not been closed, exercised, or allowed to expire. It differs from trading volume, which
measures contracts traded during a particular period. It does not represent daily
exercises or an exchange-imposed limit on the number of contracts that investors may
write.
Question 4
A company with 46 employees wants to establish a retirement plan that is relatively
inexpensive to administer and permits both employee salary-reduction contributions
and employer contributions. Which plan is most appropriate?
A. SIMPLE IRA
B. Defined benefit plan
C. Coverdell ESA
D. Nonqualified deferred compensation plan
Correct Answer: A. SIMPLE IRA
Rationale: A Savings Incentive Match Plan for Employees, or SIMPLE IRA, is
designed primarily for employers with 100 or fewer employees. It allows employees to
make salary-reduction contributions and generally requires employer matching or
nonelective contributions. Defined benefit plans are more complex, while Coverdell
ESAs fund education and nonqualified plans are usually designed for selected
executives.
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Question 5
A company reports current assets of $6 million and current liabilities of $4 million.
What is its current ratio, and what does the ratio primarily measure?
A. 0.67; long-term solvency
B. 1.50; ability to meet short-term obligations
C. 2.00; profitability relative to equity
D. 10.00; efficiency of inventory management
Correct Answer: B. 1.50; ability to meet short-term obligations
Rationale: The current ratio equals current assets divided by current liabilities: $6
million ÷ $4 million = 1.50. It evaluates whether the company has sufficient short-
term assets to meet short-term obligations. It does not directly measure long-term
solvency, shareholder profitability, or the rate at which inventory is sold.
Question 6
A 52-year-old client wishes to begin receiving money from a traditional IRA without
incurring the usual 10% premature-distribution penalty. The client agrees to follow a
prescribed withdrawal schedule. Which provision may permit the distributions?
A. Rule 144A
B. Rule 72(t)
C. Regulation T
D. The wash-sale rule
Correct Answer: B. Rule 72(t)
Rationale: Rule 72(t) permits penalty-free distributions before age 59½ when the
investor receives a series of substantially equal periodic payments calculated under an
approved method. The schedule must generally continue for the required period. Rule
144A concerns private securities resales, Regulation T governs credit, and the wash-
sale rule affects tax-loss deductions.
Question 7
A compliance officer reviews reporting procedures for equity trades. Which statement
correctly distinguishes reporting of listed and over-the-counter equity securities?
A. Only OTC transactions are publicly reported
B. Listed trades are reported to TRACE
C. Listed trades appear on the consolidated tape, while OTC trades are reported