Series 7 Exam Questions And
Correct Answers (Verified
Answers) Plus Rationales 2026
Q&A | Instant Download Pdf
1. Which of the following best describes the primary purpose of the
Series 7 license?
A. To allow an individual to manage retirement accounts
independently
B. To permit an individual to solicit, buy, and sell a broad range of
securities products **
C. To provide tax preparation services for clients
D. To offer financial planning advice exclusively
Rationale: The Series 7 license qualifies an individual to solicit, buy,
and sell a broad range of securities products, including stocks, bonds,
and options. It does not cover tax preparation or independent
financial planning.
2. A customer wants to purchase 100 shares of a new issue at the
offering price. The broker-dealer is acting as:
A. An agent **
B. A principal
, C. A market maker
D. A custodian
Rationale: When a broker-dealer executes an order on behalf of a
customer for a new issue, it is acting as an agent, earning a
commission on the transaction rather than buying or selling for its
own account.
3. Which of the following is true about a margin account?
A. It allows customers to trade without any initial deposit
B. It allows customers to borrow money from the broker to buy
securities **
C. It restricts customers to cash-only transactions
D. It prevents customers from purchasing options
Rationale: A margin account allows customers to borrow funds from
the broker-dealer to purchase securities, leveraging their buying
power. Initial deposits and ongoing maintenance requirements apply.
4. A client purchases $10,000 face value of a corporate bond at 102.
What is the purchase price?
A. $10,000
B. $10,200 **
C. $9,800
D. $10,100
Rationale: Corporate bonds are priced as a percentage of par. 102% of
$10,000 is $10,200, calculated as $10,000 × 1.02.
5. Which of the following is a characteristic of a closed-end
investment company?
A. Shares are redeemable at NAV
, B. Shares trade on an exchange or OTC **
C. New shares are continuously issued at NAV
D. Shares cannot be sold once purchased
Rationale: Closed-end funds issue a fixed number of shares, which
trade on exchanges or OTC at market prices that may differ from NAV.
Open-end funds redeem shares at NAV.
6. Which of the following orders is designed to limit losses if a stock
declines?
A. Market order
B. Limit order
C. Stop order **
D. Good-til-canceled order
Rationale: A stop order becomes a market order once the stock
reaches a specified price, helping limit losses on a declining security.
7. Which of the following securities is considered a money market
instrument?
A. Treasury bond
B. Treasury bill **
C. Corporate debenture
D. Municipal bond
Rationale: Treasury bills are short-term debt instruments issued by the
U.S. Treasury with maturities of one year or less, classifying them as
money market instruments.
8. Which statement is true regarding variable annuities?
A. They provide a guaranteed rate of return
B. They invest in a fixed portfolio of bonds
, C. The payout varies based on investment performance **
D. They are insured by the FDIC
Rationale: Variable annuities’ payments fluctuate depending on the
performance of the underlying investments, unlike fixed annuities,
which offer a guaranteed return.
9. A customer places an order to buy 200 shares of stock at $50 or
better. What type of order is this?
A. Market order
B. Limit order **
C. Stop order
D. Stop-limit order
Rationale: A limit order specifies the maximum price a buyer is willing
to pay (or minimum a seller is willing to accept), in this case $50.
10. Which of the following describes a convertible bond?
A. A bond that can be exchanged for cash at a fixed date
B. A bond that can be converted into common stock **
C. A bond with no stated maturity
D. A bond sold only to institutional investors
Rationale: Convertible bonds allow the holder to convert the bond into
a predetermined number of shares of the issuer’s common stock.
11. An investor wants income and safety of principal. Which
investment is most appropriate?
A. Growth stock
B. Municipal bond **
C. High-yield corporate bond
D. Option contracts
Correct Answers (Verified
Answers) Plus Rationales 2026
Q&A | Instant Download Pdf
1. Which of the following best describes the primary purpose of the
Series 7 license?
A. To allow an individual to manage retirement accounts
independently
B. To permit an individual to solicit, buy, and sell a broad range of
securities products **
C. To provide tax preparation services for clients
D. To offer financial planning advice exclusively
Rationale: The Series 7 license qualifies an individual to solicit, buy,
and sell a broad range of securities products, including stocks, bonds,
and options. It does not cover tax preparation or independent
financial planning.
2. A customer wants to purchase 100 shares of a new issue at the
offering price. The broker-dealer is acting as:
A. An agent **
B. A principal
, C. A market maker
D. A custodian
Rationale: When a broker-dealer executes an order on behalf of a
customer for a new issue, it is acting as an agent, earning a
commission on the transaction rather than buying or selling for its
own account.
3. Which of the following is true about a margin account?
A. It allows customers to trade without any initial deposit
B. It allows customers to borrow money from the broker to buy
securities **
C. It restricts customers to cash-only transactions
D. It prevents customers from purchasing options
Rationale: A margin account allows customers to borrow funds from
the broker-dealer to purchase securities, leveraging their buying
power. Initial deposits and ongoing maintenance requirements apply.
4. A client purchases $10,000 face value of a corporate bond at 102.
What is the purchase price?
A. $10,000
B. $10,200 **
C. $9,800
D. $10,100
Rationale: Corporate bonds are priced as a percentage of par. 102% of
$10,000 is $10,200, calculated as $10,000 × 1.02.
5. Which of the following is a characteristic of a closed-end
investment company?
A. Shares are redeemable at NAV
, B. Shares trade on an exchange or OTC **
C. New shares are continuously issued at NAV
D. Shares cannot be sold once purchased
Rationale: Closed-end funds issue a fixed number of shares, which
trade on exchanges or OTC at market prices that may differ from NAV.
Open-end funds redeem shares at NAV.
6. Which of the following orders is designed to limit losses if a stock
declines?
A. Market order
B. Limit order
C. Stop order **
D. Good-til-canceled order
Rationale: A stop order becomes a market order once the stock
reaches a specified price, helping limit losses on a declining security.
7. Which of the following securities is considered a money market
instrument?
A. Treasury bond
B. Treasury bill **
C. Corporate debenture
D. Municipal bond
Rationale: Treasury bills are short-term debt instruments issued by the
U.S. Treasury with maturities of one year or less, classifying them as
money market instruments.
8. Which statement is true regarding variable annuities?
A. They provide a guaranteed rate of return
B. They invest in a fixed portfolio of bonds
, C. The payout varies based on investment performance **
D. They are insured by the FDIC
Rationale: Variable annuities’ payments fluctuate depending on the
performance of the underlying investments, unlike fixed annuities,
which offer a guaranteed return.
9. A customer places an order to buy 200 shares of stock at $50 or
better. What type of order is this?
A. Market order
B. Limit order **
C. Stop order
D. Stop-limit order
Rationale: A limit order specifies the maximum price a buyer is willing
to pay (or minimum a seller is willing to accept), in this case $50.
10. Which of the following describes a convertible bond?
A. A bond that can be exchanged for cash at a fixed date
B. A bond that can be converted into common stock **
C. A bond with no stated maturity
D. A bond sold only to institutional investors
Rationale: Convertible bonds allow the holder to convert the bond into
a predetermined number of shares of the issuer’s common stock.
11. An investor wants income and safety of principal. Which
investment is most appropriate?
A. Growth stock
B. Municipal bond **
C. High-yield corporate bond
D. Option contracts
