Equity Securities — Series 7 FINRA practice questions

A limited partner in a DPP has liability:

1. Unlimited joint and several with general partners
2. Limited to capital plus any recourse debt assumed
3. Limited only to the initial capital contribution
4. Determined solely by the offering memorandum terms

Answer: B — Limited to capital plus any recourse debt assumed

A) That is general partner liability. B) Correct — LP liability includes capital contributed plus assumed recourse debt. C) Recourse debt also counts, if assumed. D) Statutory limits apply regardless of offering language.

A customer sells 1 XYZ May 60 Put at $4. The maximum loss is:

1. $6,400
2. $400
3. $5,600
4. $6,000

Answer: C — $5,600

A) $6,400 wrongly adds premium to strike. B) $400 is the max gain, not loss. C) Correct — (60 strike - 4 premium) x 100 = $5,600 if stock goes to zero. D) $6,000 ignores premium credit.

European-style options may be exercised only:

1. Any regular business day
2. On the dividend record date
3. During a trading market halt
4. On expiration date only

Answer: D — On expiration date only

A) Any-day defines American. B) Record date is a dividend concept. C) Halts pause trading, not style. D) Correct — exercise only at expiration.

A research report attached to a sales pitch for an issuer must disclose the:

1. Any conflicts of interest of the analyst or firm
2. Estimated future dividend yield of the security
3. Registered principal's approval date and time stamp
4. Trade volume history for the prior 30 trading days

Answer: A — Any conflicts of interest of the analyst or firm

B) Dividend estimates are not the required conflict disclosure. A) Correct — conflicts (ownership, banking relationship) must be disclosed. C) Approval detail is not a required disclosure. D) Historical volume is not a required disclosure.

The FINRA maintenance margin requirement on short equity positions is:

1. 20% of current market value of the short position
2. 25% of current market value of the short position
3. 40% of current market value of the short position
4. 30% of current market value of the short position

Answer: D — 30% of current market value of the short position

A) Below the minimum. B) That's long-side maintenance. C) Above the standard. D) Correct — 30% is FINRA short-side maintenance.

Regular-way settlement for U.S. equity trades is now:

1. T+1 (one business day)
2. T+2 (two business days)
3. T+3 (three business days)
4. T+0 (same business day)

Answer: A — T+1 (one business day)

A) Correct — as of May 2024, regular-way equity settlement is T+1. B) T+2 was the standard until 2024. C) T+3 was the standard until 2017. D) T+0 is cash settlement, by agreement.

Customer buys 1 ABC Jul 40 Put at $4. Maximum gain equals:

1. $400 (equals the premium paid)
2. Unlimited (matches short call profit)
3. $4,000 (equals the strike times 100)
4. $3,600 (strike minus premium times 100)

Answer: D — $3,600 (strike minus premium times 100)

A) That is max loss on a long put. D) Correct — max gain = (40 - 4) x 100 = $3,600 if stock goes to zero. C) Ignores the premium already paid. B) Long puts have a defined maximum gain.

Convertible preferred, $100 par, $25 conversion price. Conversion ratio equals:

1. 1 share per preferred share held (par-based)
2. 2 shares per preferred share held (par-based)
3. 25 shares per preferred share held (conv price)
4. 4 shares per preferred share held (par/price)

Answer: D — 4 shares per preferred share held (par/price)

A) Ignores the conversion math. B) Ignores the conversion math. C) That is the conversion price, not ratio. D) Correct — $100 par / $25 = 4 common shares.

Long margin account: $60,000 market value, $25,000 debit. Equity equals:

1. $25,000 (equals the debit balance amount)
2. $35,000 (market value minus debit balance)
3. $60,000 (equals the market value amount)
4. $85,000 (market value plus debit balance)

Answer: B — $35,000 (market value minus debit balance)

A) That's the debit, not equity. B) Correct — equity = market value - debit = $35,000. C) That's market value, not equity. D) Adds where subtraction is needed.

A Currency Transaction Report (CTR) under the Bank Secrecy Act must be filed for cash exceeding:

1. $2,500 in a single transaction event
2. $5,000 in a single transaction event
3. $25,000 in a single business day aggregated
4. $10,000 in a single business day aggregated

Answer: D — $10,000 in a single business day aggregated

A) Below the CTR threshold. B) Below the CTR threshold. C) Above the standard CTR threshold. D) Correct — CTR triggered at more than $10,000 in cash in a business day.

What is cumulative preferred stock?

Preferred stock that accrues unpaid dividends. All missed dividends must be paid before any common stock dividends.

What is a short squeeze?

When a heavily shorted stock rises sharply, forcing short sellers to buy shares to cover, further driving up the price.

What is restricted stock under Rule 144?

Unregistered securities acquired in a private placement or from an affiliate; resale generally requires a holding period, volume limits, and (for affiliates) manner-of-sale and notice requirements.

What is the continuing education requirement for registered reps?

Regulatory Element (FINRA-mandated content within 120 days of 2nd anniversary, then annually) and Firm Element (annual firm-specific training).