Series 7 Practice Exam (100 Questions &
Answers with Rationales)
1. Which organization primarily regulates broker-dealers in the United States?
A. SEC
B. FINRA
C. Federal Reserve
D. IRS
Correct Answer: FINRA
Rationale: FINRA oversees broker-dealer firms and enforces rules
governing securities professionals, while the SEC regulates the broader
securities markets.
2. A customer buys 100 shares at $40 and sells at $50. What is the gain?
A. $1,000
B. $500
C. $4,000
D. $10,000
Correct Answer: $1,000
Rationale: ($50 - $40) × 100 shares = $1,000 gain.
3. Which order is executed first in a normal market?
A. Market order
B. Limit order
C. Stop order
D. Stop-limit order
Correct Answer: Market order
, Rationale: Market orders are executed immediately at the best available
price.
4. What does a stop-loss order do?
A. Guarantees profit
B. Buys below market price
C. Sells when price falls to a set level
D. Executes only at limit price
Correct Answer: Sells when price falls to a set level
Rationale: A stop-loss order triggers a market order once a specified price
is reached to limit losses.
5. Which investment is most sensitive to interest rate changes?
A. Stocks
B. Long-term bonds
C. Cash equivalents
D. Commodities
Correct Answer: Long-term bonds
Rationale: Longer maturities have greater price volatility when interest
rates change.
6. Preferred stock generally provides:
A. Voting rights
B. Fixed dividends
C. Capital gains only
D. Tax-free income
Correct Answer: Fixed dividends
Rationale: Preferred stock typically pays a fixed dividend and has priority
over common stock dividends.
7. A municipal bond interest is generally:
A. Taxable federally
B. Tax-free federally
C. Tax-free state only
D. Taxable always
, Correct Answer: Tax-free federally
Rationale: Most municipal bond interest is exempt from federal income
tax.
8. What is a characteristic of common stock?
A. Fixed income
B. Ownership interest
C. Guaranteed dividends
D. Debt obligation
Correct Answer: Ownership interest
Rationale: Common stock represents equity ownership in a company.
9. Which order is used to limit purchase price?
A. Market order
B. Buy stop order
C. Buy limit order
D. Sell stop order
Correct Answer: Buy limit order
Rationale: A buy limit order sets the maximum price a buyer is willing to
pay.
10.A bond selling at a discount means:
A. Coupon > yield
B. Yield > coupon
C. Par value increased
D. Interest rate is zero
Correct Answer: Yield > coupon
Rationale: Discount bonds have yields higher than their coupon rates.
11.What is systematic risk?
A. Company-specific risk
B. Market-wide risk
C. Fraud risk
D. Credit risk only
Correct Answer: Market-wide risk
Answers with Rationales)
1. Which organization primarily regulates broker-dealers in the United States?
A. SEC
B. FINRA
C. Federal Reserve
D. IRS
Correct Answer: FINRA
Rationale: FINRA oversees broker-dealer firms and enforces rules
governing securities professionals, while the SEC regulates the broader
securities markets.
2. A customer buys 100 shares at $40 and sells at $50. What is the gain?
A. $1,000
B. $500
C. $4,000
D. $10,000
Correct Answer: $1,000
Rationale: ($50 - $40) × 100 shares = $1,000 gain.
3. Which order is executed first in a normal market?
A. Market order
B. Limit order
C. Stop order
D. Stop-limit order
Correct Answer: Market order
, Rationale: Market orders are executed immediately at the best available
price.
4. What does a stop-loss order do?
A. Guarantees profit
B. Buys below market price
C. Sells when price falls to a set level
D. Executes only at limit price
Correct Answer: Sells when price falls to a set level
Rationale: A stop-loss order triggers a market order once a specified price
is reached to limit losses.
5. Which investment is most sensitive to interest rate changes?
A. Stocks
B. Long-term bonds
C. Cash equivalents
D. Commodities
Correct Answer: Long-term bonds
Rationale: Longer maturities have greater price volatility when interest
rates change.
6. Preferred stock generally provides:
A. Voting rights
B. Fixed dividends
C. Capital gains only
D. Tax-free income
Correct Answer: Fixed dividends
Rationale: Preferred stock typically pays a fixed dividend and has priority
over common stock dividends.
7. A municipal bond interest is generally:
A. Taxable federally
B. Tax-free federally
C. Tax-free state only
D. Taxable always
, Correct Answer: Tax-free federally
Rationale: Most municipal bond interest is exempt from federal income
tax.
8. What is a characteristic of common stock?
A. Fixed income
B. Ownership interest
C. Guaranteed dividends
D. Debt obligation
Correct Answer: Ownership interest
Rationale: Common stock represents equity ownership in a company.
9. Which order is used to limit purchase price?
A. Market order
B. Buy stop order
C. Buy limit order
D. Sell stop order
Correct Answer: Buy limit order
Rationale: A buy limit order sets the maximum price a buyer is willing to
pay.
10.A bond selling at a discount means:
A. Coupon > yield
B. Yield > coupon
C. Par value increased
D. Interest rate is zero
Correct Answer: Yield > coupon
Rationale: Discount bonds have yields higher than their coupon rates.
11.What is systematic risk?
A. Company-specific risk
B. Market-wide risk
C. Fraud risk
D. Credit risk only
Correct Answer: Market-wide risk
