# Series 7 Mastery — full site text Source: https://series7.mzbacademy.com · Updated 2026-11-06. Independent study guide by Muhammad Babar, MBA; not affiliated with FINRA. Practice questions are original and are not actual exam questions. --- # Series 7 Study Guide 2026–2027 | Series 7 Mastery Book URL: https://series7.mzbacademy.com/ The Series 7 study guide · 2026–2027 Expanded Edition ## Series 7 Mastery The complete study guide to the FINRA General Securities Representative Exam. Every topic on the Series 7 exam, explained in plain language, then worked one step at a time. 1,140+ practice questions, 6 full-length practice exams, 90 worked examples, 500+ flashcards and audio review lessons — every answer explained. Updated for 2026 rules. By [Muhammad Babar, MBA](https://series7.mzbacademy.com/about-the-author) **1,140+** practice questions **6** full-length exams **90** worked examples **500+** flashcards **19** audio lessons ### Built the way the Series 7 exam is built FINRA scores the Series 7 on 125 questions across four job functions. The book follows the same four functions — and gives Function 3, nearly three out of four questions, the most pages. [See the full table of contents](https://series7.mzbacademy.com/chapters). 9exam questions · Function 1 #### Seeks business for the broker-dealer Communications with the public, telemarketing, the registration process for new issues, private placements and Rule 144. 1. 2 Prospecting, communications and new issues 11exam questions · Function 2 #### Opens accounts Customer identification, Reg BI and Form CRS, account types, senior-investor protections, AML, IRAs, 401(k)s and 529 plans. 1. 3 Opening and managing customer accounts 2. 4 Retirement and education accounts 91exam questions · Function 3 #### Provides information and makes recommendations Every product on the exam, with the math the exam expects: yields, TEY, breakpoints, options, margin and taxes. 1. 5 Equity securities 2. 6 Debt: prices, yields and risks 3. 7 Corporate debt and money market 4. 8 Government, agency and mortgage-backed securities 5. 9 Municipal securities 6. 10 Mutual funds, ETFs and UITs 7. 11 Variable annuities and insurance products 8. 12 DPPs, REITs and alternatives 9. 13 Options I: fundamentals 10. 14 Options II: spreads, index options, rules 11. 15 Economics, analysis and portfolios 12. 16 Taxation of investments 13. 17 Margin accounts 14exam questions · Function 4 #### Processes and confirms transactions Order types, markups, Reg SHO, T+1 settlement, ACATS, trade reporting, complaints and records. 1. 18 Orders, trading and settlement 2. 19 Regulation, complaints and records ### Every section teaches in three steps The same rhythm in all 19 chapters, so you always know what comes next. #### Learn the concept A clear explanation of one exam topic, with tables that organize the rules, numbers and deadlines you have to remember. #### Work an example An exam-style problem solved line by line — breakevens, tax-equivalent yields, margin calls — so you see exactly how the answer is reached. #### Test yourself A question in exam format to answer on your own, with the answer and a full explanation in the key at the back of the book. ### Free Series 7 study resources Use these alongside the book — or on their own, to see how the book teaches. [](https://series7.mzbacademy.com/series-7-practice-test) #### Online Series 7 practice tests Six timed, full-length exams and 19 chapter quizzes, scored by function. Read →[](https://series7.mzbacademy.com/series-7-flashcards) #### Series 7 flashcards 500+ flip cards by chapter. Mark what you know and review the rest. Read →[](https://series7.mzbacademy.com/series-7-audio-lessons) #### Series 7 audio lessons 19 short chapter reviews read aloud — study on your commute. Read →[](https://series7.mzbacademy.com/series-7-exam) #### Series 7 exam guide 2026 Format, cost, passing score, requirements and retake rules in one place. Read →[](https://series7.mzbacademy.com/how-to-pass-the-series-7) #### How to pass the Series 7 A six-week study plan, exam-day pacing and the traps that cost points. Read →[](https://series7.mzbacademy.com/series-7-formula-sheet) #### Series 7 formula sheet Every formula on the exam, printable on one page. Read →[](https://series7.mzbacademy.com/sie-vs-series-7) #### SIE vs Series 7 How the two exams differ and which order to take them in. Read →[](https://series7.mzbacademy.com/series-7-practice-questions) #### 25 free practice questions Exam-style questions with answers you can read right on the page. Read →[](https://series7.mzbacademy.com/series-7-options-cheat-sheet) #### Options cheat sheet Breakevens, max gain and max loss for every strategy the exam tests. Read →[](https://series7.mzbacademy.com/series-7-cheat-sheet) #### Series 7 cheat sheet 80 must-know facts, 20 costly traps and an exam-day checklist. Read → ### Current for 2026 Rules change, and question banks lag. Where a rule changed recently, the book teaches the current rule and the older one you may still see in practice materials. - **T+1 settlement** Regular-way trades settle in one business day, so the ex-dividend date now equals the record date. - **Pattern day trader rule replaced** FINRA's intraday margin standards took effect June 4, 2026, with firm phase-in allowed through October 20, 2027. - **2026 retirement limits** IRA \$7,500 plus \$1,100 catch-up; 401(k) \$24,500 plus \$8,000, or \$11,250 at ages 60 to 63. - **Gift limits raised to \$300** FINRA Rule 3220 from March 30, 2026, and MSRB Rule G-20 for FINRA-member dealers from June 1, 2026. - **Gift and estate tax** \$19,000 annual exclusion and a \$15 million lifetime exemption for 2026; 529 K–12 limit now \$20,000 a year. - **Outside activities: Rule 3290** Replaces Rules 3270 and 3280 on October 25, 2027; only investment-related outside activities will need notice. - **Performance projections approved** The SEC approved Rule 2210 amendments on October 15, 2026; the effective date is still to be announced. - **Shorter retake waits coming** From January 19, 2027, the wait after a failed attempt drops to 15 days (60 days after a third failure). [See all rule updates and errata](https://series7.mzbacademy.com/series-7-updates) ### About the author **Muhammad Babar** earned his MBA from Old Dominion University in 2009. In the years since, he has helped numerous candidates prepare for and pass the Series 7 — working with them on the topics that most often stand between a candidate and a passing score. [More about the author](https://series7.mzbacademy.com/about-the-author). > First the concept in plain language. Then a worked example, solved one step at a time. Then a question to try on your own. ### Frequently asked questions What is the best book for the Series 7 exam? The best Series 7 book is one that is current for this year's rules, follows FINRA's four job functions in proportion to the exam, shows the math step by step, and includes a full-length practice exam with explained answers. *Series 7 Mastery* was written to meet each of those tests; see [how to choose a Series 7 study guide](https://series7.mzbacademy.com/best-series-7-study-guide). Is this book enough to pass the Series 7? The book covers every topic in FINRA's Series 7 content outline and includes more than 1,140 practice questions, including six full-length 125-question exams that you can also take as timed tests online. Aim to score 80% or more on Exams 4 to 6 before you sit for the real one. Is the book updated for 2026 rules? Yes. The 2026–2027 Edition teaches T+1 settlement, the 2026 IRA and 401(k) limits, the \$300 gift limit, FINRA's new intraday margin standards and other recent changes. Later changes are listed on the [rule updates page](https://series7.mzbacademy.com/series-7-updates). How many practice exams are in the book? Six full-length 125-question practice exams, each weighted like the real Series 7 (9, 11, 91 and 14 questions across the four functions), plus a 15-question review quiz at the end of every chapter — over 1,140 questions in all, every one explained. All six exams are also available as [timed online tests](https://series7.mzbacademy.com/series-7-practice-test). Does the book include flashcards or audio? Yes. The book prints more than 400 flashcards by chapter, and the website adds an interactive deck of 500+ cards and 19 audio review lessons you can listen to on your phone. Is Series 7 Mastery available on Kindle? Yes. It is published for Kindle and in print on Amazon. The Kindle edition reads on any Kindle device or the free Kindle app for phones, tablets and computers. --- # Series 7 Exam Guide 2026: Format, Cost, Passing Score URL: https://series7.mzbacademy.com/series-7-exam Series 7 exam guide ## The Series 7 Exam: 2026 Guide Everything you need to know before you enroll: what the Series 7 covers, how it is scored, what it costs, who can take it and what happens if you fail. By [Muhammad Babar, MBA](https://series7.mzbacademy.com/about-the-author) · Updated November 6, 2026 **On this page** [What it is](#what)[Format](#format)[Topics](#functions)[Requirements](#requirements)[Cost](#cost)[Passing score](#scoring)[Retakes](#retake)[FAQ](#faq) ### What is the Series 7 exam? The Series 7 — formally the **General Securities Representative Qualification Examination (GS)** — is the FINRA exam that qualifies you to sell almost every kind of security: stocks, bonds, options, municipal securities, mutual funds and other investment company products, variable annuities, and direct participation programs. It is the license most stockbrokers, financial advisors at broker-dealers and many trading-desk staff need. Since 2018 the Series 7 has been a "top-off" exam: general industry knowledge is tested on the [Securities Industry Essentials (SIE) exam](https://series7.mzbacademy.com/sie-vs-series-7), and the Series 7 tests the job-specific knowledge of a registered representative. ### Series 7 exam format at a glance | Item | Series 7 | |-------------------|-------------------------------------------------------| | Questions | 125 scored + 5 unscored pretest questions (130 total) | | Question type | Multiple choice, four answer options | | Time | 3 hours 45 minutes (225 minutes) | | Passing score | 72 | | Fee | \$395 (SIE: \$100) | | Corequisite | SIE exam | | Sponsorship | Required (FINRA or other SRO member firm) | | Enrollment window | 120 days | ### What's on the Series 7: the four job functions FINRA's content outline divides the exam into four functions. Function 3 alone is nearly three-quarters of the exam, so that is where most of your study time should go. | Function | What it covers | Questions | Share | |----------|------------------------------------------------|-----------|-------| | F1 | Seeks business for the broker-dealer | 9 | 7% | | F2 | Opens accounts | 11 | 9% | | F3 | Provides information and makes recommendations | 91 | 73% | | F4 | Processes and confirms transactions | 14 | 11% | Function 3 covers the products and the math: equity and debt securities, municipal bonds, investment companies, variable annuities, DPPs, [options](https://series7.mzbacademy.com/series-7-options-cheat-sheet), economics, taxation and [margin](https://series7.mzbacademy.com/series-7-formula-sheet). See how *Series 7 Mastery* maps [every chapter to these functions](https://series7.mzbacademy.com/chapters). ### Who can take the Series 7? Requirements - **Sponsorship.** You must be associated with and sponsored by a FINRA member firm or another applicable SRO member. Your firm enrolls you by filing Form U4. - **SIE.** You must also pass the SIE to hold the registration. The SIE can be taken without a sponsor and remains valid for four years. - **Window.** Once enrolled, you have 120 days to schedule and sit for the exam. - **State registration.** Most states also require the Series 63 (or the Series 66, with the Series 7) before you can do business with their residents. ### How much does the Series 7 cost? FINRA's fee is **\$395** per attempt, and the SIE adds **\$100**. Budget separately for study materials. Most broker-dealers pay exam fees for the people they sponsor; ask your firm before you pay anything yourself. Fees change, so confirm them on FINRA's [Series 7 page](https://www.finra.org/registration-exams-ce/qualification-exams/series7). ### What is the Series 7 passing score? The passing score is **72**. FINRA reports a scaled score, so the number of correct answers needed can vary slightly between exam forms. A practical rule: if you consistently score **80% or higher** on full-length, timed practice exams, you are ready. You see a preliminary pass/fail result on screen when you finish. **Pacing:** 225 minutes ÷ 130 questions ≈ 1 minute 44 seconds each. Mark anything that takes longer than two minutes and come back to it. There is no penalty for guessing, so never leave a question blank. [More exam-day strategy](https://series7.mzbacademy.com/how-to-pass-the-series-7). ### Failed the Series 7? Retake rules | After | Wait today | Wait from Jan 19, 2027 | |--------------------------------|------------|------------------------| | 1st or 2nd failed attempt | 30 days | 15 days | | 3rd consecutive failed attempt | 180 days | 60 days | The shorter waits come from FINRA Regulatory Notice 26-18. Each retake requires a new enrollment and fee. ### Series 7 vs other FINRA and NASAA exams - **Series 6** — limited to mutual funds, variable annuities and similar packaged products. The Series 7 covers everything the Series 6 does, and more. - **Series 63** — the state-law exam most states require for agents. Usually taken with or after the Series 7. - **Series 65 / 66** — for investment adviser representatives who charge fees for advice. The Series 66 combines the 63 and 65 and requires the Series 7. - **Series 24 / 9 / 10** — principal and supervisor exams taken after the Series 7. ### Series 7 exam FAQ How many questions are on the Series 7 exam? 125 scored multiple-choice questions plus 5 unscored pretest questions, for 130 in all. You cannot tell which questions are unscored. What is the passing score for the Series 7? A score of 72. FINRA reports a scaled score, so think of the target as roughly 72% correct — and aim for 80% or more on practice exams to give yourself a margin. How long is the Series 7 exam? 3 hours and 45 minutes (225 minutes). That is about 1 minute 44 seconds per question. How much does the Series 7 exam cost? FINRA's fee is \$395 for the Series 7. The SIE, which you must also pass, costs \$100. Many sponsoring firms pay these fees for their candidates. Confirm current fees on FINRA's website before you enroll. Do I need a sponsor to take the Series 7? Yes. You must be associated with and sponsored by a FINRA member firm (or another applicable SRO member). Your firm files Form U4 to enroll you, which opens a 120-day window to take the exam. The SIE has no sponsorship requirement. Do I have to pass the SIE before the Series 7? The SIE is a corequisite: you must pass both to hold the General Securities Representative registration. You may take them in either order, but most candidates take the SIE first because its material is the foundation for the Series 7. How long do I have to wait to retake the Series 7? Currently 30 days after a first or second failed attempt and 180 days after a third consecutive failure. From January 19, 2027, those waits shorten to 15 days and 60 days. How long should I study for the Series 7? Most candidates need roughly 80 to 120 hours of focused study over six to ten weeks. Candidates with a finance background often need less; those new to options and margin math usually need more. When do I get my Series 7 results? You see a preliminary pass or fail result on screen as soon as you finish the exam. Does the Series 7 expire? Your registration lapses if you are not registered with a firm for two years. FINRA's Maintaining Qualifications Program lets you extend that window to up to five years by completing annual continuing education. Sources: FINRA, [Series 7 — General Securities Representative Exam](https://www.finra.org/registration-exams-ce/qualification-exams/series7); FINRA Regulatory Notice 26-18. Always confirm requirements with FINRA and your sponsoring firm. --- # How to Pass the Series 7 Exam: 6-Week Study Plan (2026) URL: https://series7.mzbacademy.com/how-to-pass-the-series-7 Study plan ## How to Pass the Series 7 Exam A six-week study plan, the techniques that raise scores fastest, and an exam-day strategy for 130 questions in 225 minutes. By [Muhammad Babar, MBA](https://series7.mzbacademy.com/about-the-author) · Updated November 6, 2026 **On this page** [7 steps](#steps)[6-week plan](#plan)[Question traps](#traps)[Exam day](#examday)[FAQ](#faq) The Series 7 rewards candidates who understand *why* a rule exists and can do the math quickly. Memorizing alone is not enough: FINRA writes scenario questions that ask what a representative should do for a specific customer. This plan is built on the method used throughout *Series 7 Mastery* — learn the concept, work an example, then test yourself. ### 7 steps to pass the Series 7 on your first attempt 1. **Pass the SIE first.** The SIE covers the vocabulary the Series 7 assumes. See [SIE vs Series 7](https://series7.mzbacademy.com/sie-vs-series-7). 2. **Study in proportion to the exam.** Function 3 is 91 of 125 questions (73%). Spend roughly three-quarters of your time on products, recommendations, options, tax and margin. 3. **Schedule 80–120 hours.** One to two hours on weekdays and a longer block on weekends gets most candidates there in six to eight weeks. 4. **Work problems, don't just read.** Every calculation on the exam — yields, breakevens, margin, tax-equivalent yield — should be something you have done by hand at least five times. 5. **Own the formula sheet.** Copy the [Series 7 formula sheet](https://series7.mzbacademy.com/series-7-formula-sheet) from memory once a day in the final two weeks. 6. **Review every miss.** For each wrong answer, write down why the right answer is right and why yours was wrong. Patterns appear quickly. 7. **Take full, timed practice exams.** Sit at least two 125-question exams in one session. Book the real exam when you score 80% or more. ### A 6-week Series 7 study plan 1. Week 1 #### Foundations and Function 1 Chapters 1–2: exam strategy, communications, new issues, underwriting, Rule 144 and Rules 5130/5131. **Do this:** Take a 20-question diagnostic. Start your formula sheet. 2. Week 2 #### Customer accounts and equities Chapters 3–5: account types, Reg BI, AML, retirement and 529 plans, common and preferred stock, rights and warrants. **Do this:** Answer every Test Yourself question before reading its explanation. 3. Week 3 #### Debt and municipal securities Chapters 6–9: bond pricing and yields, corporate and government debt, MBS and CMOs, GO and revenue bonds, MSRB rules. **Do this:** Drill current yield, YTM ordering and tax-equivalent yield until automatic. 4. Week 4 #### Packaged products and options I Chapters 10–13: mutual funds, ETFs, UITs, variable annuities, DPPs and REITs, options basics. **Do this:** Build a T-chart for every options problem. Use the options cheat sheet. 5. Week 5 #### Options II, analysis, tax and margin Chapters 14–17: spreads, straddles, index options, economics, analysis, taxation and margin. **Do this:** Work margin problems by hand: LMV − DR = EQ, SMA and maintenance calls. 6. Week 6 #### Trading, regulation and practice exams Chapters 18–19, then the six full-length practice exams under timed conditions — in the book or online. **Do this:** Review every miss by chapter. Retake weak sections. Book your exam when you reach 80%. Short on time? Compress to four weeks by combining weeks 1–2 and 3–4, but keep the final week for practice exams. More time? Stretch to eight to ten weeks and add a second full practice exam. ### Series 7 question traps to watch for - **EXCEPT and NOT questions.** Three answers are true; you want the false one. Read each option as "true or false?" - **"MOST" and "BEST" suitable.** Several answers may be acceptable. Pick the one that best fits the customer's stated objective, time horizon and risk tolerance. - **Extra numbers.** Scenario questions often include figures you do not need. Identify what is asked before calculating. - **Old rules.** Some practice materials still teach T+2 settlement, the \$100 gift limit or the pattern day trader rule. Learn the [current rules](https://series7.mzbacademy.com/series-7-updates). - **Buyer vs seller in options.** Decide first whether the investor bought or sold, then whether it is a call or a put. Most options errors start there. ### Series 7 exam-day strategy - **Pace:** about 1 minute 44 seconds per question. Check that you are past question 65 at the halfway mark. - **Two passes:** answer everything you know, mark the rest, then return. - **Use the scratch paper:** write the formula first, then the numbers. - **Never leave a blank:** there is no penalty for guessing. - **Don't chase unscored questions:** five are pretest items, but you cannot tell which. Treat every question as if it counts. ### How to pass the Series 7: FAQ Is the Series 7 hard to pass? It is a demanding exam because it is long and covers many products, but it is very passable with a plan. Most failures come from under-preparing on options, margin and municipal securities, or from running short on time. Can I pass the Series 7 in two weeks? Only if you already know most of the material, such as a recent SIE pass plus a finance background. Most candidates need six to ten weeks. Two weeks is a good length for a final review and practice-exam phase. What is the hardest part of the Series 7? For most candidates, options (especially spreads and combinations), margin calculations and municipal securities. They are also heavily tested, which is why the book gives them full chapters with worked examples. What score should I get on practice exams before the real Series 7? Aim for 80% or higher on two or three full-length, timed practice exams before you test. Below 75%, keep studying your weakest function. --- # Free Series 7 Practice Questions with Answers (2026) URL: https://series7.mzbacademy.com/series-7-practice-questions Practice test ## Free Series 7 Practice Questions 25 exam-style questions from the *Series 7 Mastery* practice exam, with the answer and a full explanation for each. Try every question before you open the answer. By [Muhammad Babar, MBA](https://series7.mzbacademy.com/about-the-author) · Updated November 6, 2026 **Topics** [Prospecting](#prospecting-communications-and-new-issues)[Customer accounts](#customer-accounts-retirement-and-aml)[Equity](#equity-debt-municipal-and-fund-products)[Options](#options)[Margin](#margin-taxation-and-economics)[Orders](#orders-trading-and-settlement) These questions are weighted toward Function 3, just like the real Series 7. Work each one on paper, then check the explanation. Keep a list of the topics you miss — that list is your study plan. When you finish, see [how to pass the Series 7](https://series7.mzbacademy.com/how-to-pass-the-series-7) or review the [formula sheet](https://series7.mzbacademy.com/series-7-formula-sheet). ### Prospecting, communications and new issues Function 1 · Chapter 2 Question 1 A registered representative plans to send the same email describing the firm's new wealth-management service to 40 retail prospects next week. Which statement is TRUE? 1. **A.** It is correspondence and needs no review 2. **B.** It is a retail communication and must be approved by a principal before it is sent 3. **C.** It is an institutional communication 4. **D.** It must be filed with FINRA 30 days before use Show answer and explanation Answer: B. It is a retail communication and must be approved by a principal before it is sent Distribution to more than 25 retail investors within 30 days makes it a retail communication, which requires principal approval before use. Filing is not generally required for this type of communication by an established member. Question 2 In which type of underwriting does the issuer bear the risk of unsold securities? 1. **A.** Firm commitment 2. **B.** Standby 3. **C.** Best efforts 4. **D.** Eastern account Show answer and explanation Answer: C. Best efforts In a best-efforts underwriting the underwriter acts as agent and returns unsold securities to the issuer. In a firm commitment (and for the unsubscribed shares in a standby), the underwriter bears the risk. Question 3 Under Rule 144, an affiliate who sells restricted stock must file Form 144 if, in a 90-day period, the sale exceeds: 1. **A.** 1,000 shares or \$10,000 2. **B.** 5,000 shares or \$50,000 3. **C.** 10,000 shares or \$100,000 4. **D.** 1% of the outstanding shares Show answer and explanation Answer: B. 5,000 shares or \$50,000 Form 144 is required when sales in a 90-day period exceed 5,000 shares or \$50,000 in value. ### Customer accounts, retirement and AML Function 2 · Chapters 3–4 Question 4 Which item is required by the Customer Identification Program before an account may be opened for an individual U.S. citizen? 1. **A.** Employer's name 2. **B.** Date of birth 3. **C.** Net worth 4. **D.** A trusted contact person Show answer and explanation Answer: B. Date of birth CIP requires name, date of birth, a street address and an identification number. Employer, net worth and trusted contact are collected for other purposes and are not CIP requirements. Question 5 A married couple holds an account as joint tenants with right of survivorship. One spouse dies. What happens to the account? 1. **A.** It is frozen until the deceased spouse's will is probated 2. **B.** Half passes to the deceased spouse's estate 3. **C.** It passes to the surviving spouse 4. **D.** It is divided according to each spouse's contributions Show answer and explanation Answer: C. It passes to the surviving spouse With JTWROS, the deceased owner's interest passes automatically to the surviving owner(s), outside of probate. The survivor provides a death certificate and re-registers the account. Question 6 A 45-year-old customer in 2026 has \$9,000 of wages. What is the maximum she may contribute to her IRAs for the year? 1. **A.** \$9,000 2. **B.** \$8,600 3. **C.** \$7,500 4. **D.** \$6,000 Show answer and explanation Answer: C. \$7,500 The 2026 limit is the lesser of earned income or \$7,500. The \$1,100 catch-up applies only at age 50 or older. Question 7 Which is TRUE of a 529 plan? 1. **A.** Contributions are deductible on the federal return 2. **B.** Contributions are limited to \$2,000 per year 3. **C.** The account owner retains control and may change the beneficiary to another family member 4. **D.** Earnings on non-qualified withdrawals are tax-free Show answer and explanation Answer: C. The account owner retains control and may change the beneficiary to another family member The 529 owner keeps control and may change beneficiaries within the family. Contributions are not federally deductible, there is no \$2,000 limit (that is a Coverdell rule), and non-qualified earnings are taxed plus a 10% penalty. Question 8 Which of the following is the FIRST stage of money laundering? 1. **A.** Integration 2. **B.** Layering 3. **C.** Placement 4. **D.** Structuring Show answer and explanation Answer: C. Placement Placement — introducing illicit funds into the financial system — comes first, followed by layering and integration. Structuring is a technique used during placement. ### Equity, debt, municipal and fund products Function 3 · Chapters 5–12 Question 9 Which type of preferred stock would be MOST affected by changes in the price of the issuer's common stock? 1. **A.** Cumulative preferred 2. **B.** Convertible preferred 3. **C.** Adjustable-rate preferred 4. **D.** Callable preferred Show answer and explanation Answer: B. Convertible preferred A convertible preferred's value is tied to the common stock through its conversion feature, especially when the conversion value is above its investment value. Question 10 A \$1,000 par convertible bond has a conversion price of \$25. The common stock trades at \$28. What is the bond's parity price? 1. **A.** \$1,120 2. **B.** \$1,000 3. **C.** \$893 4. **D.** \$1,250 Show answer and explanation Answer: A. \$1,120 Conversion ratio = \$1,000 ÷ \$25 = 40 shares. Parity of the bond = 40 × \$28 = \$1,120. Question 11 A 6% corporate bond is quoted at 108. The current yield is approximately: 1. **A.** 5.56% 2. **B.** 6.00% 3. **C.** 6.48% 4. **D.** 8.00% Show answer and explanation Answer: A. 5.56% Current yield = annual interest ÷ price = \$60 ÷ \$1,080 = 5.56%. Question 12 A Treasury note is quoted at 98-08. What is the dollar price per \$1,000 of par? 1. **A.** \$980.80 2. **B.** \$980.08 3. **C.** \$982.50 4. **D.** \$988.00 Show answer and explanation Answer: C. \$982.50 98-08 = 98 8/32 = 98.25% of par = \$982.50. Question 13 A customer in the 32% federal tax bracket owns a municipal bond yielding 3.4%. What is the tax-equivalent yield? 1. **A.** 2.31% 2. **B.** 4.49% 3. **C.** 5.00% 4. **D.** 10.63% Show answer and explanation Answer: C. 5.00% TEY = 3.4% ÷ (1 − 0.32) = 3.4% ÷ 0.68 = 5.00%. Question 14 A mutual fund has a NAV of \$12.00 and a POP of \$12.75. The sales charge as a percentage of POP is: 1. **A.** 5.88% 2. **B.** 6.25% 3. **C.** 7.50% 4. **D.** 8.50% Show answer and explanation Answer: A. 5.88% (\$12.75 − \$12.00) ÷ \$12.75 = \$0.75 ÷ \$12.75 = 5.88%. (As a percentage of NAV it would be 6.25% — a common distractor.) Question 15 Which statement about REITs is TRUE? 1. **A.** Investors may deduct the REIT's depreciation on their own returns 2. **B.** REIT dividends are qualified dividends taxed at long-term capital gains rates 3. **C.** A REIT must distribute at least 90% of its taxable income to avoid corporate tax 4. **D.** All REITs are traded on exchanges Show answer and explanation Answer: C. A REIT must distribute at least 90% of its taxable income to avoid corporate tax The 90% distribution requirement is central to REIT status. Losses and depreciation do not pass through, most REIT dividends are not qualified, and non-traded REITs exist. ### Options Function 3 · Chapters 13–14 Question 16 A customer purchases 200 shares of a stock at \$45 and simultaneously buys 2 puts with a 40 strike at 1.50. What is the customer's maximum potential loss? 1. **A.** \$300 2. **B.** \$1,000 3. **C.** \$1,300 4. **D.** \$9,300 Show answer and explanation Answer: C. \$1,300 Protective put. Per share: cost \$45 + premium \$1.50 = \$46.50; floor (put strike) \$40; loss = \$6.50 × 200 shares = \$1,300. Question 17 An investor owns 100 shares of DEF at \$70 and writes 1 DEF 75 call at 2. What is the investor's breakeven? 1. **A.** \$68 2. **B.** \$72 3. **C.** \$73 4. **D.** \$77 Show answer and explanation Answer: A. \$68 Covered call breakeven = stock cost − premium = \$70 − \$2 = \$68. Question 18 An investor buys 1 ABC Jul 60 call at 4 and 1 ABC Jul 60 put at 3. What are the breakeven points? 1. **A.** \$53 and \$67 2. **B.** \$56 and \$64 3. **C.** \$57 and \$63 4. **D.** \$60 only Show answer and explanation Answer: A. \$53 and \$67 Long straddle: total premium \$7. Breakevens = \$60 ± \$7 = \$53 and \$67. Question 19 An investor sells 1 DEF 45 call at 6 and buys 1 DEF 50 call at 3. What is the maximum gain? 1. **A.** \$200 2. **B.** \$500 3. **C.** \$600 4. **D.** \$300 Show answer and explanation Answer: D. \$300 Selling the more valuable (lower-strike) call creates a \$3 credit — a bear call spread. Maximum gain is the credit, \$300. Maximum loss is \$5 − \$3 = \$2; \$2 × 100 = \$200; breakeven is \$48. ### Margin, taxation and economics Function 3 · Chapters 15–17 Question 20 A customer opens a margin account and buys 500 shares of XYZ at \$30. What is the Reg T requirement? 1. **A.** \$2,000 2. **B.** \$3,750 3. **C.** \$7,500 4. **D.** \$15,000 Show answer and explanation Answer: C. \$7,500 500 × \$30 = \$15,000; Reg T 50% = \$7,500, which exceeds the \$2,000 FINRA minimum. Question 21 A margin customer has a debit balance of \$30,000. Below what long market value will a FINRA maintenance call be issued? 1. **A.** \$40,000 2. **B.** \$37,500 3. **C.** \$45,000 4. **D.** \$60,000 Show answer and explanation Answer: A. \$40,000 \$30,000 ÷ 0.75 = \$40,000. At that value, equity (\$10,000) equals 25% of LMV. Question 22 A woman inherits stock that her father bought for \$15,000. It was worth \$42,000 when he died. She sells it four months later for \$45,000. What is her gain? 1. **A.** \$30,000 short-term 2. **B.** \$3,000 long-term 3. **C.** \$3,000 short-term 4. **D.** \$30,000 long-term Show answer and explanation Answer: B. \$3,000 long-term Inherited property receives a step-up in basis to \$42,000, and the holding period is automatically long-term. Question 23 To slow inflation, the Federal Reserve would MOST likely: 1. **A.** Buy Treasury securities in the open market 2. **B.** Lower the discount rate 3. **C.** Raise the target range for the federal funds rate 4. **D.** Lower interest on reserve balances Show answer and explanation Answer: C. Raise the target range for the federal funds rate Raising the fed funds target range (supported by a higher IORB) tightens credit. The other actions are expansionary. ### Orders, trading and settlement Function 4 · Chapter 18 Question 24 Which order type guarantees a price but not an execution? 1. **A.** Market order 2. **B.** Sell stop order 3. **C.** Buy limit order 4. **D.** Buy stop order Show answer and explanation Answer: C. Buy limit order A limit order will execute only at the limit price or better, so the price is guaranteed but the order may never execute. Stop orders become market orders when triggered. Question 25 The ex-dividend date for a stock trading regular way is: 1. **A.** Two business days before the record date 2. **B.** One business day before the record date 3. **C.** The same day as the record date 4. **D.** One business day after the payable date Show answer and explanation Answer: C. The same day as the record date With T+1 settlement, the ex-dividend date is the same as the record date. (For distributions of 25% or more, the ex-date follows the payable date.) **Your score:** 25 questions. 20 or more correct (80%) is a strong result; under 18 (72%), focus on the sections where you missed the most. The full book has more than 1,140 practice questions, including six complete 125-question practice exams — also available as [timed online tests](https://series7.mzbacademy.com/series-7-practice-test). --- # Series 7 Options Cheat Sheet: Breakevens, Max Gain & Loss URL: https://series7.mzbacademy.com/series-7-options-cheat-sheet Options ## Series 7 Options Cheat Sheet Breakevens, maximum gain and maximum loss for every options position on the Series 7 — plus the rules that make options questions fast. By [Muhammad Babar, MBA](https://series7.mzbacademy.com/about-the-author) · Updated November 6, 2026 Options are one of the most heavily tested — and most feared — areas of the Series 7. Nearly every options question can be solved with four facts: who bought, who sold, the breakeven, and which way the investor wants the market to move. ### The four basic positions | Position | Market view | Breakeven | Max gain | Max loss | |------------|-------------------|------------------|-----------------|-----------------| | Long call | Bullish | Strike + premium | Unlimited | Premium | | Short call | Bearish (neutral) | Strike + premium | Premium | Unlimited | | Long put | Bearish | Strike − premium | Breakeven × 100 | Premium | | Short put | Bullish (neutral) | Strike − premium | Premium | Breakeven × 100 | **Memory aids:** *Calls Up, Puts Down* — add the premium to the strike for calls, subtract for puts. The buyer and the seller of the same option always share the same breakeven. Buyers want volatility and exercise; sellers want the option to expire. ### Options combined with stock | Position | Purpose | Breakeven | Max gain | Max loss | |----------------------------------------|----------------------------------|-----------------------|---------------------------------|----------------------------------------| | Long stock + short call (covered call) | Income; partial downside cushion | Cost − premium | (Strike − cost + premium) × 100 | Breakeven × 100 | | Long stock + long put (protective put) | Protects a long position | Cost + premium | Unlimited | (Cost + premium − strike) × 100 | | Short stock + long call | Protects a short position | Short price − premium | Breakeven × 100 | (Strike − short price + premium) × 100 | ### Spreads and straddles | Position | Breakeven | Max gain | Max loss | |----------------|-----------------------------|-------------------------------------------------------|-------------------------------------------------------| | Call spread | Lower strike + net premium | Debit: strike difference − debit · Credit: the credit | Debit: the debit · Credit: strike difference − credit | | Put spread | Higher strike − net premium | Same as call spreads | Same as call spreads | | Long straddle | Strike ± total premiums | Unlimited | Total premiums | | Short straddle | Strike ± total premiums | Total premiums | Unlimited | - **Debit spreads** (you paid) want the premiums to *widen* and both options exercised. **Credit spreads** (you received) want premiums to *narrow* and both to expire. - **Bull call spread:** buy the lower strike, sell the higher (debit). **Bear call spread:** sell the lower, buy the higher (credit). - **Bear put spread:** buy the higher strike, sell the lower (debit). **Bull put spread:** sell the higher, buy the lower (credit). ### Worked example: protecting a short sale **Question.** A customer sells short 100 shares at \$40 and buys 1 45 call at 2. What are the breakeven and maximum loss? 1. Money in: \$40 from the short sale. Money out: the \$2 premium. Breakeven = \$40 − \$2 = **\$38**. 2. If the stock rises above \$45, the customer exercises the call and buys at \$45 to cover the short. 3. Loss per share = \$45 + \$2 − \$40 = \$7. Maximum loss = \$7 × 100 = **\$700**. ### Intrinsic value and time value - **Call intrinsic value** = market price − strike (never below zero). **Put intrinsic value** = strike − market price. - **Time value** = premium − intrinsic value. - A call is *in the money* when the market is above the strike; a put is in the money when the market is below the strike. ### Options rules the Series 7 tests - **Options Disclosure Document (ODD):** delivered at or before account approval. - **Account approval:** a registered options principal approves the account before the first trade; the signed options agreement is due within 15 days of approval. - **Settlement:** options trades settle T+1; exercised equity options settle T+1 in shares; index options settle in cash. - **Exercise style:** American-style can be exercised any time before expiration; European-style only at expiration. - **Assignment:** the OCC assigns exercise notices to broker-dealers at random; firms may assign to customers by random, FIFO or another fair method. - **Index hedge:** contracts needed = (portfolio value × beta) ÷ (index level × \$100). ### Options FAQ How do you calculate the breakeven on a call option? Strike price plus premium. A 50 call bought for 3 breaks even at \$53. Remember 'calls up': add for calls. How do you calculate the breakeven on a put option? Strike price minus premium. A 40 put bought for 2 breaks even at \$38. Remember 'puts down': subtract for puts. What is the maximum loss on a long option? The premium paid. A buyer can never lose more than the premium. Which options positions have unlimited risk? A short (uncovered) call and short stock without a hedge. A short straddle also has unlimited risk on the call side. --- # Series 7 Formula Sheet (Free, Printable) — 2026 URL: https://series7.mzbacademy.com/series-7-formula-sheet Free printable ## Series 7 Formula Sheet Every formula you need for the Series 7 exam on one page: yields, tax-equivalent yield, options, margin, mutual fund pricing, ratios and taxes. Copy it out by hand until you can reproduce it from memory. ### Equity (Chapter 5) | Measure | Formula | |-----------------------------|--------------------------------------------------| | Outstanding shares | Issued − Treasury | | Cumulative voting | Shares × Seats | | Preferred dividend | Rate × Par (\$100) | | Conversion ratio | Par ÷ Conversion price | | Parity price of stock | Convertible’s market price ÷ Conversion ratio | | Parity price of convertible | Stock price × Conversion ratio | | Right value, cum-rights | (Market − Subscription) ÷ (Rights per share + 1) | | Right value, ex-rights | (Market − Subscription) ÷ Rights per share | ### Debt (Chapters 6–9) | Measure | Formula | |-------------------------------------------------|---------------------------------------------------------------------------------------------| | Dollar price | Quote (% of par) × \$1,000; 1 point = \$10; 1/32 of a point = \$0.3125 (per \$1,000 of par) | | Current yield | Annual interest ÷ Market price | | Approximate YTM | \[Annual interest + (Par − Price) ÷ Years\] ÷ \[(Par + Price) ÷ 2\] | | Discount bond yields | Nominal \< Current \< YTM \< YTC | | Premium bond yields | Nominal \> Current \> YTM \> YTC (when callable at par) | | % price change from duration | ≈ −Modified duration × Change in yield (approximation) | | Accrued interest (corporate, municipal: 30/360) | Par × Coupon × Days ÷ 360 | | Accrued interest (Treasury: actual/actual) | Par × Coupon ÷ 2 × (Actual days ÷ Actual days in the coupon period) | | T-bill price | Face × \[1 − (Discount yield × Days ÷ 360)\] | | TIPS interest | Coupon rate × Inflation-adjusted principal | | Tax-equivalent yield | Municipal yield ÷ (1 − Tax rate) | | Municipal-equivalent yield | Taxable yield × (1 − Tax rate) | | Property tax | Assessed value × Mills ÷ 1,000 | | Debt service coverage | Net revenue ÷ Debt service | | Total takedown | Additional takedown + Concession | ### Investment Companies (Chapter 10) | Measure | Formula | |---------------------------------|---------------------------------------------| | NAV per share | (Assets − Liabilities) ÷ Shares outstanding | | Sales charge % | (POP − NAV) ÷ POP | | POP | NAV ÷ (1 − Sales charge %) | | Premium / discount (closed-end) | (Market price − NAV) ÷ NAV | ### Options (Chapters 13–14) | Position | Breakeven | Max gain | Max loss | |-------------------------|-----------------------------|---------------------------------------------------|---------------------------------------------------| | Long call | Strike + premium | Unlimited | Premium | | Short call | Strike + premium | Premium | Unlimited | | Long put | Strike − premium | BE × 100 | Premium | | Short put | Strike − premium | Premium | BE × 100 | | Covered call | Cost − premium | (Strike − cost + premium) × 100 | BE × 100 | | Protective put | Cost + premium | Unlimited | (Cost + premium − strike) × 100 | | Short stock + long call | Short price − premium | BE × 100 | (Strike − short price + premium) × 100 | | Call spread | Lower strike + net premium | Debit: strike difference − debit · Credit: credit | Debit: debit · Credit: strike difference − credit | | Put spread | Higher strike − net premium | (same as above) | (same as above) | | Straddle | Strike ± total premium | Long: unlimited · Short: premiums | Long: premiums · Short: unlimited | Intrinsic value: call = market − strike; put = strike − market (never below zero). Time value = premium − intrinsic value. Index hedge contracts = (Portfolio value × Beta) ÷ (Index × \$100). Uncovered equity option margin = Premium + 20% of underlying − OTM amount (minimum: premium + 10%). ### Margin (Chapter 17) | Measure | Formula | |---------------------------------|------------------------| | Long account | LMV − DR = EQ | | Short account | SMV + EQ = CR | | Reg T requirement | 50% of market value | | Excess equity (credited to SMA) | EQ − Reg T requirement | | Buying power | SMA × 2 | | Long maintenance call level | DR ÷ 0.75 | | Short maintenance call level | CR ÷ 1.30 | ### Analysis, Returns and Taxes (Chapters 15–16) | Measure | Formula | |--------------------------|---------------------------------------------------------------------------| | Current ratio | Current assets ÷ Current liabilities | | Quick ratio | (Current assets − Inventory) ÷ Current liabilities | | EPS | (Net income − Preferred dividends) ÷ Common shares | | P/E ratio | Price ÷ EPS | | Dividend payout | Dividends per share ÷ EPS | | Dividend (current) yield | Annual dividend ÷ Price | | Total return | (Income + Price change) ÷ Beginning value | | Real return | ≈ Nominal return − Inflation (exact: (1 + nominal) ÷ (1 + inflation) − 1) | | Sharpe ratio | (Return − Risk-free rate) ÷ Standard deviation | | Capital loss deduction | Up to \$3,000 per year; excess carried forward | From *Series 7 Mastery*, where every formula is taught with a step-by-step worked example. See the [options cheat sheet](https://series7.mzbacademy.com/series-7-options-cheat-sheet) for options strategies in more detail. --- # Series 7 Cheat Sheet 2026: 80 Must-Know Facts & Traps URL: https://series7.mzbacademy.com/series-7-cheat-sheet Free printable ## Series 7 Cheat Sheet: 80 Must-Know Facts The last-72-hours review from *Series 7 Mastery*: the 80 facts that decide the most questions, the 20 traps that cost candidates the most points, and an exam-day checklist. Updated for 2026–2027 rules. ### The 80 Must-Know Facts **Seeking business and new issues (Chapter 2)** **1.** Correspondence goes to **25 or fewer** retail investors in 30 days; more than 25 makes it a **retail communication**, which needs **principal approval before use**. **2.** Telemarketing calls are allowed **8:00 a.m. to 9:00 p.m. in the called person’s time zone**; firm do-not-call requests are honored for **5 years**. **3.** During the **cooling-off period** (at least 20 days): preliminary prospectus and indications of interest only — **no sales, no money, no selling literature**. **4.** A **tombstone** may state facts (issuer, security, amount, price, underwriters, where to get a prospectus) but may not recommend. **5.** **Firm commitment** — the underwriter bears unsold-securities risk; **best efforts** — the issuer does. **6.** Reg D **506(b)**: unlimited accredited plus **35** sophisticated non-accredited; **506(c)**: general solicitation allowed, but **all** buyers must be **verified** accredited investors. **7.** Rule 144: restricted stock of a reporting company — **6 months** holding; affiliates’ volume limit is the **greater of 1%** of outstanding shares or the **4-week average** weekly volume; **Form 144** above **5,000 shares or \$50,000** in 90 days. **8.** Rule 5130 bars **restricted persons** (broker-dealer employees and their immediate family, portfolio managers) from buying hot IPOs; the **de minimis** exception is **10%**. **Opening and managing accounts (Chapters 3–4)** **9.** CIP requires **name, date of birth, address and ID number**; a **trusted contact** is requested but not required. **10.** Rule 2165 temporary holds cover customers **65 and older** (or 18+ with an impairment); notice to authorized parties and the trusted contact within **2 business days**. **11.** **Discretion** = choosing the asset, the action or the amount — it needs **prior written authority**. Time and price alone can be given orally for **that day**. **12.** **CTR**: cash over **\$10,000** in a day. **SAR**: suspicious activity of **\$5,000 or more**, filed within **30 days** — never tell the customer. **13.** **Form CRS** is delivered to retail investors at the earliest of a **recommendation, an order or opening an account**. **14.** Reg BI’s four obligations: **disclosure, care, conflict of interest, compliance**. Sales contests on specific securities in a limited period must be **eliminated**. **15.** 2026 IRA limit **\$7,500** (+**\$1,100** at 50+); 401(k) **\$24,500** (+**\$8,000**; **\$11,250** at ages 60–63); SIMPLE **\$17,000**; SEP up to 25% of pay, **\$72,000** cap. **16.** RMDs begin at **73**; Roth IRAs have **no lifetime RMDs**. Indirect rollovers must be completed within **60 days**, and employer plans withhold **20%**. **17.** Coverdell ESA: **\$2,000** per beneficiary per year. 529 plans: owner keeps control, K–12 tuition up to **\$20,000** a year. **18.** Trump Accounts (Section 530A): **\$5,000** a year per child, **\$1,000** federal seed for children born **2025–2028**, no withdrawals before **18**. **19.** JTWROS passes to the survivor outside probate; **tenants in common** passes to the deceased owner’s **estate**. **20.** UTMA/UGMA: **one minor, one custodian**; the assets belong to the minor and are taxed under the minor’s Social Security number. **Equity and debt (Chapters 5–9)** **21.** Cumulative preferred: pay **all arrears plus the current dividend** before any common dividend. **22.** Cumulative voting = shares × seats, all for one candidate if desired — it **favors minority shareholders**. **23.** Rights: short-term, issued **below** market, pro rata. Warrants: long-term, issued **above** market, often attached to bonds. **24.** With T+1, the **ex-date is the record date**. Stock dividends of 25% or more: ex-date is the day **after the payable date**. **25.** Parity: conversion ratio = **par ÷ conversion price**; parity stock price = bond price ÷ ratio. **26.** Premium bond: **nominal \> current yield \> YTM \> YTC**. Discount bond: the reverse. **27.** Longer maturity and **lower coupon** = more price sensitivity; a **zero** is the most sensitive. **28.** Liquidation order: wages/taxes → **secured** → unsecured (debentures) → **subordinated** → preferred → common. **29.** **Commercial paper**: 270 days or less, exempt from registration. **Bankers’ acceptances** finance **international trade**. **30.** Treasury quotes are in **32nds**: 1/32 = **\$0.3125** per \$1,000. T-bills trade on a **discount yield**; the **bid yield is higher** than the ask. **31.** Treasury interest: **federal tax, state-exempt**. **GNMA** is the only agency MBS with the **full faith and credit** guarantee; it is taxable at **all** levels. **32.** Falling rates → **prepayment** risk; rising rates → **extension** risk. **PAC** = most protected tranche; **IO** rises when rates rise. **33.** **GO** bonds: taxes, voter approval, debt limits. **Revenue** bonds: user fees, feasibility study, **trust indenture**, no debt limit. **34.** **Double-barreled** bonds are analyzed as GOs. **IDRs** are the riskiest municipals and may trigger the **AMT**. **35.** **TEY = muni yield ÷ (1 − tax rate)**. Territories (Puerto Rico, Guam, USVI) are **triple tax-exempt**. **36.** Municipal premium **must be amortized** — no deduction; held to maturity, **no gain or loss**. Municipal **OID** accretion is tax-free; **market discount** is ordinary income. **37.** Order period priority: **presale, group net, net designated, member**. Total takedown = **additional takedown + concession**. **38.** The MSRB **writes** rules but does **not enforce** them. G-37: **\$250** per election de minimis; **2-year** ban on negotiated business. **39.** MSRB G-20 gift limit **\$300** (FINRA members from June 1, 2026); municipal trades reported to RTRS within **15 minutes**. **Funds, annuities and alternatives (Chapters 10–12)** **40.** **Sales charge % = (POP − NAV) ÷ POP**; maximum **8.5%** of POP. **POP = NAV ÷ (1 − SC%)**. **41.** **Forward pricing**: the next NAV computed after the order is received. **42.** **LOI**: 13 months, backdate **90 days**, shares held in **escrow**. **ROA** counts existing holdings. **43.** **Class A** for large amounts and long holding periods; **Class C** for short holding periods. **44.** **No-load** = no sales charges and a 12b-1 fee of **0.25% or less**. **45.** Capital gains distributions are **long-term** regardless of how long the shareholder owned the fund; reinvested distributions are still taxable. **46.** Closed-end funds trade at a **premium or discount**; ETFs trade intraday; **leveraged/inverse ETFs reset daily** and are generally unsuitable for long holds. **47.** Variable annuity: owner bears investment risk; needs **securities registration and insurance license**. **48.** Payments rise only if the separate account beats the **AIR** — not merely when returns are positive. **49.** Payout options: **life only** pays the most; **joint and last survivor** the least. **50.** Non-qualified annuity withdrawals: **LIFO** — earnings first, ordinary income, **10% penalty** before 59½, **no step-up** at death. **51.** Rule 2330: principal review within **7 business days**; look back **36 months** for prior exchanges. **52.** Limited partners: **limited liability**, no management role; become partners when the **GP signs** the subscription agreement. **53.** Passive losses offset only **passive income**; tax **credits** beat deductions dollar for dollar. **54.** REITs: distribute **90%**; income passes through, **losses do not**; dividends generally **not qualified**. **Options (Chapters 13–14)** **55.** Calls: breakeven = **strike + premium**. Puts: breakeven = **strike − premium**. **56.** Short (naked) call: **unlimited** loss. Long put max gain = **breakeven × 100**. **57.** Covered call breakeven = **cost − premium**; protective put breakeven = **cost + premium**. **58.** Debit spreads want premiums to **widen**; credit spreads want them to **narrow**. Call spread BE = **lower strike + net**; put spread BE = **higher strike − net**. **59.** Straddle breakevens = **strike ± total premium**; long straddle expects **volatility**. **60.** Index options settle in **cash** (× \$100). Exporters receiving foreign currency buy **puts**; importers paying it buy **calls**. **61.** ODD at or before **approval**; signed options agreement within **15 days**. **62.** Uncovered equity option margin = **premium + 20% of the underlying − out-of-the-money amount** (minimum premium + 10%). **63.** Exercised call: premium **adds to cost basis**. Exercised put: premium **reduces sale proceeds** (holder) or **cost basis** (writer). **Analysis, taxes and margin (Chapters 15–17)** **64.** Leading: stock prices, building permits, new orders. Coincident: payrolls, industrial production. Lagging: duration of unemployment, prime rate. **65.** Fed easing = **buy** securities, lower rates. **Open market operations** are the most-used tool. **66.** **Current ratio** = CA ÷ CL; **quick ratio** excludes inventory; **EPS** = (NI − preferred dividends) ÷ shares. **67.** **Diversification** cuts business risk, **not** market risk. **Sharpe** = (R − Rf) ÷ σ. **68.** Long-term = held **more than one year**. Net capital loss deduction: **\$3,000** a year, unlimited carryforward. **69.** Wash sale: **30 days before or after**; the disallowed loss is **added to the new basis**. **70.** Inherited stock: basis **stepped up**, always **long-term**. Gifted stock: donor’s basis for gains; lower FMV for losses. **71.** 2026 gift exclusion **\$19,000** (\$38,000 split); lifetime exemption **\$15 million**; donor pays gift tax. **72.** Reg T: **50%**, minimum equity **\$2,000** (never more than the purchase price); payment by **T+3**. **73.** Long: **LMV − DR = EQ**; maintenance **25%**; call price = **DR ÷ 0.75**. Buying power = **SMA × 2**. **74.** Short: **SMV + EQ = CR**; maintenance **30%**; call price = **CR ÷ 1.30**. **75.** SMA **never falls** when market value drops. The **PDT rule and \$25,000 minimum** were replaced by intraday margin standards on **June 4, 2026**. **Trading and regulation (Chapters 18–19)** **76.** **BLiSS**: buy limits and sell stops sit **below** the market and are **reduced** for cash dividends (unless DNR). **77.** Markups are measured from the **prevailing market** (inside quote), not the firm’s cost; 5% is a **guideline**. **78.** Rule 201: a **10%** drop limits short sales to prices **above the national best bid** for the rest of the day and the **next** day. **79.** Settlement: **T+1** regular way; ACATS: validate in **1** business day, complete in **3**. **80.** SIPC: **\$500,000** per capacity, of which **\$250,000** cash. Complaints kept **4 years**; order tickets **3**; blotters **6**; FINRA gift limit **\$300**. ### The 20 Traps That Cost the Most Points **1.** **Sales charge on NAV.** It is always a percentage of the **POP**. (\$0.75 ÷ \$12.75 = 5.88%, not 6.25%.) **2.** **“Positive return, so the annuity payment rises.”** Only a return **above the AIR** raises it. **3.** **Buyer and seller breakevens.** They are **the same** number; only the direction of profit differs. **4.** **Writer’s maximum loss on a put.** It is **(strike − premium) × 100**, not the premium. **5.** **Yield order on premium bonds.** YTC is the **lowest** yield; a yield-to-call quote is used for callable premium bonds. **6.** **Inherited stock held a few weeks.** Still **long-term**. **7.** **Capital gains distribution held 2 months.** Still **long-term** — the fund’s holding period counts. **8.** **Wash sale window.** It runs **before** the sale as well as after, and includes call options and convertibles. **9.** **SMA after a market drop.** It **does not decrease**. **10.** **The \$2,000 minimum.** A \$1,500 purchase needs **\$1,500**, not \$2,000. **11.** **Short maintenance.** It is **30%**, not 25%, and the call price uses **÷ 1.30**. **12.** **Markup base.** Use the **inside ask** (customer buying) or **inside bid** (customer selling), never the firm’s cost. **13.** **Market discount on a municipal bond.** Taxable as **ordinary income** — only OID is tax-free. **14.** **Who enforces MSRB rules?** **FINRA**, the SEC and bank regulators — never the MSRB. **15.** **“Diversification eliminates risk.”** It cannot touch **systematic (market)** risk. **16.** **Telemarketing time zone.** The limits apply in the **called person’s** time zone. **17.** **Holding exactly one year.** That is **short-term**; long-term needs **more than** one year. **18.** **Joint account sharing.** A rep shares **in proportion** to contribution, except with **immediate family**. **19.** **Reg D advertising.** General solicitation is allowed **only** under 506(c), with **verified** accredited buyers. **20.** **“EXCEPT” and “NOT” questions.** Read them twice; three answers will be true. ### Exam-Day Checklist **One week before** - Take your last full practice exam under timed conditions (225 minutes). Aim for **80% or higher** on two exams in a row. - Review every missed question, then redo the Quick Guides and these 80 facts. - Confirm your appointment, test center address (or online proctoring setup) and ID requirements in your Prometric confirmation. **The day before** - Light review only: the Formula Sheet and the 20 traps. Stop by early evening. - Lay out the unexpired, government-issued photo ID with signature that your appointment confirmation requires; the name must match your registration exactly. - Sleep at least seven hours. **Test day** - Arrive **30 minutes early**. Personal items go in a locker; you may not bring your own calculator or notes — the test center supplies a calculator and erasable boards. - Budget about **1 minute 44 seconds per question** (130 questions in 225 minutes). Mark anything that takes more than 2 minutes and come back to it. - Before calculating, write the formula on the board; for options, draw the **T-chart**. - Remember that **5 questions are unscored** — one strange question does not mean you are failing. - You need a scaled **72**. Answer every question; there is **no penalty for guessing**. **After the exam** - You receive your result at the test center. If you need a retake, the wait is 30 days after a first or second failure and 180 days after three in a row — shortened to **15 and 60 days** from **January 19, 2027**. Use your score report to target your weakest function right away. From the Final Review section of *Series 7 Mastery*. Each fact is taught in full, with worked examples and practice questions, in the chapter shown. See also the [formula sheet](https://series7.mzbacademy.com/series-7-formula-sheet) and the [options cheat sheet](https://series7.mzbacademy.com/series-7-options-cheat-sheet). --- # Series 7 Glossary: Key Terms Explained in Plain English URL: https://series7.mzbacademy.com/series-7-glossary Key terms ## Series 7 Glossary 70 key Series 7 terms defined in plain language, from accredited investor to zero-coupon bond. [A](#letter-A)[B](#letter-B)[C](#letter-C)[D](#letter-D)[E](#letter-E)[F](#letter-F)[G](#letter-G)[H](#letter-H)[I](#letter-I)[L](#letter-L)[M](#letter-M)[N](#letter-N)[O](#letter-O)[P](#letter-P)[R](#letter-R)[S](#letter-S)[T](#letter-T)[U](#letter-U)[W](#letter-W)[Y](#letter-Y)[Z](#letter-Z) ### A Accredited investor An investor meeting SEC wealth, income or credential tests (for individuals: net worth over \$1 million excluding primary residence, income over \$200,000/\$300,000, or a Series 7, 65 or 82 license). Accrued interest Interest earned since the last payment date, paid by a bond buyer to the seller. ACATS The Automated Customer Account Transfer Service, used to move accounts between firms. ADR (American depositary receipt) A receipt issued by a U.S. bank representing shares of a foreign company. AIR (assumed interest rate) The rate used to set the number of annuity units at annuitization; payments rise or fall as actual returns exceed or trail it. Alternative minimum tax (AMT) A parallel tax calculation that adds back certain preference items, such as interest on private activity municipal bonds. ### B Basis point One one-hundredth of one percent (0.01%). Best efforts An underwriting in which the underwriter acts as agent and the issuer bears the risk of unsold securities. Beta A measure of a security's volatility relative to the overall market. Breakpoint A purchase level at which a mutual fund's front-end sales charge is reduced. ### C Callable A feature allowing the issuer to redeem a bond or preferred stock before maturity. Churning Excessive trading in an account to generate commissions. CMO (collateralized mortgage obligation) A mortgage-backed security divided into tranches with different payment priorities and risks. Cooling-off period The period of at least 20 days between filing a registration statement and its effective date. Correspondence Written communications to 25 or fewer retail investors within 30 days. Credit spread The yield difference between a bond and a comparable Treasury. Cumulative preferred Preferred stock whose missed dividends accumulate and must be paid before common dividends. Current yield Annual interest or dividends divided by the market price. ### D Debenture An unsecured bond backed only by the issuer's general credit. Direct participation program (DPP) An investment, typically a limited partnership, that passes income and losses through to investors. Discretion Authority to choose the asset, action or amount of a trade without the customer's specific approval. Duration A measure of a bond's price sensitivity to interest-rate changes, expressed in years. ### E EMMA The MSRB's Electronic Municipal Market Access website. Ex-dividend date The first date on which a buyer is not entitled to a declared dividend; the same day as the record date under T+1 settlement. ### F Firm commitment An underwriting in which the underwriter buys the entire issue and bears the risk of unsold securities. Form CRS The client relationship summary broker-dealers must deliver to retail investors. Front running Trading ahead of a customer's order to profit from the expected price movement. ### G General obligation (GO) bond A municipal bond backed by the issuer's full faith, credit and taxing power. ### H Hypothecation Pledging securities as collateral for a margin loan. ### I Indication of interest A non-binding expression of interest in a new issue, taken during the cooling-off period. Intrinsic value The amount by which an option is in the money. ### L Letter of intent (LOI) A non-binding pledge to invest enough in a fund family within 13 months to qualify for a breakpoint. Liquidity risk The risk that an investment cannot be sold quickly without a significant price concession. ### M Market maker A dealer that continuously quotes bids and offers in a security. Markup The difference between the prevailing market price and the price a dealer charges a customer. MSRB The Municipal Securities Rulemaking Board, which writes rules for municipal securities dealers and municipal advisors. Municipal note A short-term municipal obligation, such as a TAN, RAN, BAN or GAN. ### N NAV (net asset value) A fund's assets minus liabilities, per share. ### O OCC The Options Clearing Corporation, which issues and guarantees listed options. Official statement The disclosure document for a municipal bond offering. ### P Parity The price at which a convertible security and the underlying common stock are equal in value. Passive income Income from limited partnerships and other businesses in which the investor does not materially participate. Premium (option) The price paid by an option buyer to the seller. Prepayment risk The risk that mortgage borrowers repay early when rates fall. Preliminary prospectus (red herring) The disclosure document used during the cooling-off period; omits the final price. Prospectus The disclosure document for a registered securities offering. ### R Regulation Best Interest (Reg BI) The SEC standard requiring broker-dealers to act in a retail customer's best interest when making recommendations. Regulation T The Federal Reserve rule governing credit extended by broker-dealers; sets 50% initial margin. REIT A real estate investment trust; must distribute at least 90% of taxable income. Restricted person Under FINRA Rule 5130, a person prohibited from buying equity IPOs, such as broker-dealer employees. Retail communication Written communications distributed to more than 25 retail investors within 30 days. Revenue bond A municipal bond backed by the revenue of a specific facility. Rights offering An offer to existing shareholders to buy new shares, usually below market, in proportion to their holdings. ### S SAR A suspicious activity report, filed with FinCEN for suspicious transactions of \$5,000 or more. Selling away Selling securities outside the scope of one's employment without the firm's approval. SIPC The Securities Investor Protection Corporation, which protects customers of failed broker-dealers up to \$500,000 (\$250,000 cash). SMA (special memorandum account) A line of credit created by excess equity in a margin account. Spread (options) The simultaneous purchase and sale of options of the same type with different strikes or expirations. Straddle A call and a put with the same strike and expiration, both bought or both sold. Systematic risk Market-wide risk that cannot be eliminated by diversification. ### T T+1 Regular-way settlement one business day after the trade date. Tax-equivalent yield The taxable yield needed to equal a tax-exempt yield after taxes. Time value The portion of an option's premium above its intrinsic value. TIPS Treasury Inflation-Protected Securities, whose principal adjusts with the CPI. Trusted contact person An adult the firm may contact about a customer's welfare or possible financial exploitation. ### U UGMA/UTMA State laws governing custodial accounts for minors. Unsystematic risk Risk specific to a company or industry that can be reduced by diversification. ### W Wash sale A loss sale followed by a purchase of substantially identical securities within 30 days before or after; the loss is disallowed and added to the new basis. ### Y Yield to maturity (YTM) The total annualized return on a bond held to maturity. ### Z Zero-coupon bond A bond issued at a deep discount that pays no periodic interest and matures at par. --- # Series 7 Rule Changes 2026–2027: Updates and Errata URL: https://series7.mzbacademy.com/series-7-updates Updates ## Series 7 Rule Updates and Errata Securities rules and dollar limits change. This page tracks every change that affects the Series 7 exam and the 2026–2027 Edition of *Series 7 Mastery*, newest first. By [Muhammad Babar, MBA](https://series7.mzbacademy.com/about-the-author) · Updated November 6, 2026 ### Errata No errors have been reported in the published 2026–2027 Edition. If you find one, [report it](https://mzbacademy.com) and the correction will be listed on this page. ### Exam fees FINRA's current fees are \$395 for the Series 7 and \$100 for the SIE. See the [Series 7 exam guide](https://series7.mzbacademy.com/series-7-exam). ### Rule changes affecting the Series 7 - Jan 19, 2027 #### Upcoming: shorter retake waiting periods Under FINRA Regulatory Notice 26-18, the wait after a first or second failed attempt drops from 30 to 15 days, and after a third consecutive failure from 180 to 60 days. Chapter 1 teaches the 30- and 180-day waits in effect at publication. - Oct 15, 2026 #### SEC approves performance projections under Rule 2210 The SEC approved FINRA amendments to Rule 2210 that will allow projected performance and targeted returns in communications for investors able to evaluate them (not mass-market retail material), with written procedures, a reasonable basis and disclosures. FINRA will announce the effective date; until then the general prohibition applies. Chapter 2. - Sep 2026 #### FINRA Rule 3290 effective October 25, 2027 The SEC approved FINRA Rule 3290 (Outside Activities), which replaces Rules 3270 and 3280 on October 25, 2027 (Regulatory Notice 26-20). Only investment-related outside activities will need prior written notice; outside securities transactions with selling compensation need firm approval and supervision. Until then, Rules 3270 and 3280 apply. Chapter 19. - Jun 17, 2026 #### Trump Accounts excluded from Rule 3210 Trump Accounts (IRC Section 530A) allow \$5,000 a year per child, with a \$1,000 federal seed for children born 2025–2028 and no withdrawals before 18. FINRA Regulatory Notice 26-13 excludes them from Rule 3210's outside-account requirements. Chapter 4. - Jun 4, 2026 #### Intraday margin standards take effect The pattern day trader designation and the \$25,000 minimum equity requirement are replaced by intraday margin standards under FINRA Rule 4210. Firms may phase in implementation through October 20, 2027. Chapter 17. - Jun 1, 2026 #### MSRB gift limit raised to \$300 MSRB Rule G-20's gift limit rises from \$100 to \$300 for FINRA-member dealers (bank dealers and municipal advisors from December 1, 2026). Chapter 9. - Mar 30, 2026 #### FINRA gift limit raised to \$300 FINRA Rule 3220 now permits gifts of up to \$300 per person per year, up from \$100. Chapter 19. - Jan 1, 2026 #### 2026 tax and retirement limits IRA \$7,500 (+\$1,100 catch-up); 401(k), 403(b) and 457 \$24,500 (+\$8,000, or \$11,250 at ages 60–63); SIMPLE \$17,000; SEP up to \$72,000; Roth phase-outs \$153,000–\$168,000 single and \$242,000–\$252,000 joint; gift exclusion \$19,000; lifetime exemption \$15 million; 529 K–12 limit \$20,000. Chapters 4 and 16. Always confirm current requirements with FINRA, the SEC, the MSRB and your sponsoring firm before your exam date. FINRA publishes the official [Series 7 content outline](https://www.finra.org/registration-exams-ce/qualification-exams/series7). --- # SIE vs Series 7: Differences, Order and Requirements URL: https://series7.mzbacademy.com/sie-vs-series-7 Compare exams ## SIE vs Series 7: What's the Difference? Two exams, one registration. How the Securities Industry Essentials exam and the Series 7 differ, and the order to take them in. By [Muhammad Babar, MBA](https://series7.mzbacademy.com/about-the-author) · Updated November 6, 2026 | | SIE | Series 7 | |------------------|----------------------------|------------------------------------------------------| | Purpose | General industry knowledge | Job knowledge of a general securities representative | | Questions | 75 scored + 10 unscored | 125 scored + 5 unscored | | Time | 1 hour 45 minutes | 3 hours 45 minutes | | Passing score | 70 | 72 | | Fee | \$100 | \$395 | | Sponsor required | No (age 18+) | Yes | | Validity | 4 years | While registered (2-year lapse rule) | ### How the content differs The SIE tests *what things are*: types of securities, how markets work, basic regulation and prohibited practices. The Series 7 tests *what a representative does with them*: recommending suitable products, opening accounts, calculating yields, breakevens and margin, and processing orders. Expect far more math and far more customer scenarios on the Series 7. ### Which to take first Take the SIE first. Anything you learn for it — bond pricing, options vocabulary, account types — carries straight into Series 7 study. Then follow a [Series 7 study plan](https://series7.mzbacademy.com/how-to-pass-the-series-7) while the material is fresh. ### SIE and Series 7 FAQ Should I take the SIE or the Series 7 first? Take the SIE first. It needs no sponsor, it covers the foundation the Series 7 builds on, and passing it shows employers you are serious. Can I take the Series 7 without the SIE? You can sit for the Series 7 before the SIE, but you will not be registered as a General Securities Representative until you have passed both. How long is the SIE valid? Four years from the date you pass it. You must pass the Series 7 and become registered within that time. Sources: FINRA qualification exam pages for the SIE and Series 7. Fees and rules change; confirm on finra.org. --- # Best Series 7 Study Guide 2026: How to Choose a Book URL: https://series7.mzbacademy.com/best-series-7-study-guide Buyer's guide ## How to Choose the Best Series 7 Study Guide Seven things the best Series 7 books and courses have in common — and an honest look at how *Series 7 Mastery* measures up. By [Muhammad Babar, MBA](https://series7.mzbacademy.com/about-the-author) · Updated November 6, 2026 There is no single best Series 7 study guide for everyone. Some candidates learn best from a textbook, others from video, others from thousands of drilled questions. What matters is that your main resource meets a few non-negotiable standards. Use this checklist on any book or course you are considering, including this one. [TABLE] ### Book, course or question bank? - **A book** is the best way to learn the concepts and the math in order, at your own pace, and is the least expensive option. - **A video course** helps if you learn by listening, but is slower to review. - **A question bank** is valuable in the final two to three weeks for timed drilling. It is not a substitute for understanding the material. A common, effective combination is a complete book for learning plus a timed question bank for final practice. Whatever you choose, follow a plan — see [how to pass the Series 7](https://series7.mzbacademy.com/how-to-pass-the-series-7). ### See it for yourself Read the [full table of contents](https://series7.mzbacademy.com/chapters), try [25 free practice questions](https://series7.mzbacademy.com/series-7-practice-questions), or download the [formula sheet](https://series7.mzbacademy.com/series-7-formula-sheet). Amazon's Look Inside feature also shows the first chapters. --- # Series 7 Mastery Table of Contents: All 19 Chapters URL: https://series7.mzbacademy.com/chapters Inside the book ## Series 7 Mastery: Table of Contents All 19 chapters and every section, organized by FINRA's four job functions. Each section teaches a concept, works an example step by step and ends with a Test Yourself question; each chapter ends with a 15-question review quiz. Chapter 1 · Start here ### The Series 7 Exam and How to Pass It 1. 1.1 What the Series 7 Is 2. 1.2 Exam Format and Scoring 3. 1.3 The Four Job Functions 4. 1.4 How Exam Questions Are Built 5. 1.5 A Study System That Works 6. 1.6 A Note on Rules That Change 7. RQ [Chapter 1 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-01) · 15 questions Chapter 2 · Function 1 ### Prospecting, Communications and New Issues 1. 2.1 The Three Categories of Communication 2. 2.2 Social Media, Seminars and Generic Advertising 3. 2.3 Telemarketing Rules 4. 2.4 The Registration Process for New Issues 5. 2.5 Underwriting the Offering 6. 2.6 Exempt Securities and Exempt Transactions 7. 2.7 Rule 144: Restricted and Control Securities 8. 2.8 Equity IPO Allocation Rules: Rules 5130 and 5131 9. RQ [Chapter 2 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-02) · 15 questions Chapter 3 · Function 2 ### Opening and Managing Customer Accounts 1. 3.1 The New Account Form and Customer Identification 2. 3.2 Know Your Customer, Regulation Best Interest and Suitability 3. 3.3 Forms of Account Ownership 4. 3.4 Third-Party and Discretionary Authority 5. 3.5 Special Accounts and Protecting Senior Investors 6. 3.6 Anti-Money Laundering 7. 3.7 Privacy, Statements and Account Documents 8. RQ [Chapter 3 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-03) · 15 questions Chapter 4 · Function 2 ### Retirement and Education Accounts 1. 4.1 Traditional and Roth IRAs 2. 4.2 Rollovers, Transfers and Conversions 3. 4.3 Employer-Sponsored Plans 4. 4.4 Education Savings: 529 Plans and Coverdell ESAs 5. 4.5 Choosing the Right Account: Suitability Scenarios 6. RQ [Chapter 4 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-04) · 15 questions Chapter 5 · Function 3 ### Equity Securities 1. 5.1 Common Stock and Shareholder Rights 2. 5.2 Dividends and the Dividend Timeline 3. 5.3 Preferred Stock 4. 5.4 Convertible Securities 5. 5.5 Rights and Warrants 6. 5.6 American Depositary Receipts 7. RQ [Chapter 5 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-05) · 15 questions Chapter 6 · Function 3 ### Debt Securities: Prices, Yields and Risks 1. 6.1 Bond Basics and Price Quotes 2. 6.2 The Four Yields 3. 6.3 Interest-Rate Risk and Duration 4. 6.4 Call Features, Put Features and Sinking Funds 5. 6.5 Accrued Interest 6. 6.6 Credit Quality and the Yield Curve 7. RQ [Chapter 6 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-06) · 15 questions Chapter 7 · Function 3 ### Corporate Debt and Money Market Instruments 1. 7.1 Secured and Unsecured Corporate Bonds 2. 7.2 The Trust Indenture Act and Bondholder Protection 3. 7.3 High-Yield Bonds, Convertible Bonds and Bond Suitability 4. 7.4 Money Market Instruments 5. RQ [Chapter 7 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-07) · 15 questions Chapter 8 · Function 3 ### U.S. Government, Agency and Mortgage-Backed Securities 1. 8.1 Treasury Bills, Notes and Bonds 2. 8.2 STRIPS and TIPS 3. 8.3 Agency Securities 4. 8.4 Mortgage-Backed Pass-Through Securities 5. 8.5 Collateralized Mortgage Obligations (CMOs) 6. RQ [Chapter 8 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-08) · 15 questions Chapter 9 · Function 3 ### Municipal Securities 1. 9.1 General Obligation and Revenue Bonds 2. 9.2 Analyzing Municipal Credit 3. 9.3 Taxation of Municipal Securities 4. 9.4 Municipal Notes and Other Short-Term Securities 5. 9.5 Municipal Underwriting 6. 9.6 MSRB Rules and Municipal Trading 7. RQ [Chapter 9 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-09) · 15 questions Chapter 10 · Function 3 ### Investment Companies: Mutual Funds, ETFs and UITs 1. 10.1 The Investment Company Act of 1940 2. 10.2 Mutual Fund Pricing 3. 10.3 Share Classes, Breakpoints and Sales Charge Reductions 4. 10.4 Types of Funds and Disclosure Documents 5. 10.5 Closed-End Funds, ETFs, ETNs and UITs 6. 10.6 Taxation of Fund Distributions 7. RQ [Chapter 10 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-10) · 15 questions Chapter 11 · Function 3 ### Variable Annuities and Insurance-Based Products 1. 11.1 Fixed versus Variable Annuities 2. 11.2 Accumulation Units, Annuity Units and the AIR 3. 11.3 Payout Options 4. 11.4 Taxation of Annuities 5. 11.5 Suitability and Sales Practices for Variable Annuities 6. 11.6 Variable Life Insurance 7. RQ [Chapter 11 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-11) · 15 questions Chapter 12 · Function 3 ### Direct Participation Programs, REITs and Alternative Investments 1. 12.1 How Limited Partnerships Work 2. 12.2 Tax Treatment of DPPs 3. 12.3 Types of DPP Programs 4. 12.4 Real Estate Investment Trusts (REITs) 5. 12.5 Hedge Funds, Private Funds and Structured Products 6. RQ [Chapter 12 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-12) · 15 questions Chapter 13 · Function 3 ### Options I: Fundamentals and Basic Strategies 1. 13.1 Calls, Puts, Buyers and Sellers 2. 13.2 Intrinsic Value, Time Value and "Moneyness" 3. 13.3 Long and Short Calls 4. 13.4 Long and Short Puts 5. 13.5 Hedging and Income Strategies with Stock 6. 13.6 Exercise, Assignment and Expiration 7. RQ [Chapter 13 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-13) · 15 questions Chapter 14 · Function 3 ### Options II: Spreads, Straddles, Index Options and Rules 1. 14.1 Spreads 2. 14.2 Straddles and Combinations 3. 14.3 Index Options 4. 14.4 Currency and Interest-Rate Options 5. 14.5 Opening Options Accounts and Margin Requirements 6. 14.6 Taxation of Options 7. RQ [Chapter 14 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-14) · 15 questions Chapter 15 · Function 3 ### Economics, Investment Analysis and Portfolio Management 1. 15.1 The Business Cycle and Economic Indicators 2. 15.2 Monetary and Fiscal Policy 3. 15.3 Fundamental Analysis 4. 15.4 Technical Analysis 5. 15.5 Investment Risks 6. 15.6 Portfolio Strategies and Returns 7. RQ [Chapter 15 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-15) · 15 questions Chapter 16 · Function 3 ### Taxation of Investments 1. 16.1 Types of Taxes and Investment Income 2. 16.2 Netting Capital Gains and Losses 3. 16.3 Cost Basis 4. 16.4 Wash Sales 5. 16.5 Gift and Estate Taxes 6. 16.6 Taxation of Bond Income 7. RQ [Chapter 16 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-16) · 15 questions Chapter 17 · Function 3 ### Margin Accounts 1. 17.1 Margin Basics and the Rules That Govern Them 2. 17.2 Long Margin Accounts 3. 17.3 Maintenance Requirements for Long Accounts 4. 17.4 Short Margin Accounts 5. 17.5 Day Trading and the 2026 Intraday Margin Standards 6. RQ [Chapter 17 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-17) · 15 questions Chapter 18 · Function 4 ### Orders, Trading, Settlement and Confirmations 1. 18.1 Market Structure and the Firm's Role 2. 18.2 Order Types 3. 18.3 Quotes, Markups and Best Execution 4. 18.4 Short Sales and Regulation SHO 5. 18.5 Settlement, Delivery and Confirmations 6. 18.6 Trade Reporting and Market-Wide Halts 7. RQ [Chapter 18 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-18) · 15 questions Chapter 19 · Function 4 ### Regulation, Prohibited Practices, Complaints and Records 1. 19.1 The Regulatory Framework 2. 19.2 Prohibited Sales Practices 3. 19.3 Market Manipulation and Trading Abuses 4. 19.4 Registration, Outside Activities and Continuing Education 5. 19.5 Customer Complaints and Dispute Resolution 6. 19.6 Books and Records 7. RQ [Chapter 19 Review Quiz](https://series7.mzbacademy.com/series-7-practice-test#quiz-19) · 15 questions Back matter ### Practice exam, answers and reference 1. SP Study plans: 8-week, 4-week and 2-week schedules (after Chapter 1) 2. PE Six full-length 125-question practice exams, weighted like the real Series 7 3. AK Answer key for every Test Yourself question, review quiz and practice exam, with explanations 4. FR Final review: [80 must-know facts](https://series7.mzbacademy.com/series-7-cheat-sheet), 20 costly traps and an exam-day checklist 5. FS [Formula sheet](https://series7.mzbacademy.com/series-7-formula-sheet) 6. QG Quick guides: options, margin, municipals and retirement accounts on one page each 7. FC 400+ printed flashcards by chapter ([500+ online](https://series7.mzbacademy.com/series-7-flashcards)) 8. GL [Glossary](https://series7.mzbacademy.com/series-7-glossary) --- # Muhammad Babar, MBA — Author of Series 7 Mastery URL: https://series7.mzbacademy.com/about-the-author Author ## About Muhammad Babar, MBA Author of *Series 7 Mastery*. **Muhammad Babar** earned his MBA from Old Dominion University in 2009. Over the years since, he has helped numerous candidates prepare for and pass the Series 7 exam, working one on one with them on the topics that most often stand between a candidate and a passing score: options strategies, margin, municipal securities and the suitability scenarios that run through Function 3. *Series 7 Mastery* grew out of that work. Every section follows the method he uses with students: first the concept in plain language, then a worked example solved one step at a time, then a question to try on your own. He is the founder of [MZB Academy](https://mzbacademy.com). ### How he teaches Most candidates do not fail the Series 7 for lack of effort; they fail because Function 3 — 91 of the 125 questions — rewards applying rules to a customer's situation, and because a handful of calculations (option breakevens, margin calls, tax-equivalent yield, mutual fund pricing) show up again and again. His approach puts the time where the points are: the concept first, the arithmetic shown line by line, and then practice under exam conditions until the score is consistently above 80%. ### How the book and this site are checked - **Every calculation is re-computed.** Each worked example and every numeric answer is recalculated independently, and approximate formulas (such as the yield-to-maturity shortcut) are checked against the exact result. - **Rules are verified against current sources.** Dollar limits, effective dates and rule numbers are checked against FINRA, MSRB, SEC and IRS publications; changes after publication are posted on the [rule updates page](https://series7.mzbacademy.com/series-7-updates). - **Questions are original.** All practice questions are written for this book and are not actual exam questions. Each has a full explanation of why the right answer is right. - **Errors are corrected.** If you find a mistake, [report it](https://mzbacademy.com); corrections are made in the next printing and noted online. ### Books - [*Series 7 Mastery: The Complete Study Guide to the FINRA General Securities Representative Exam*](https://series7.mzbacademy.com/), 2026–2027 Edition --- # Free Series 7 Practice Tests: 6 Full-Length Timed Exams URL: https://series7.mzbacademy.com/series-7-practice-test Online practice tests ## Free Series 7 Practice Tests Six full-length, timed 125-question practice exams and 19 chapter quizzes from *Series 7 Mastery*. Take them in timed exam mode or study mode with instant explanations, and see your score by function. By [Muhammad Babar, MBA](https://series7.mzbacademy.com/about-the-author) · Updated November 6, 2026 ### What's in each test | Test | Questions | Covers | |-----------------------------|-----------|------------------------------------------------------------------------| | [Practice Exam 1](#exam-1) | 125 | All four FINRA functions, weighted 9 / 11 / 91 / 14 like the real exam | | [Practice Exam 2](#exam-2) | 125 | All four FINRA functions, weighted 9 / 11 / 91 / 14 like the real exam | | [Practice Exam 3](#exam-3) | 125 | All four FINRA functions, weighted 9 / 11 / 91 / 14 like the real exam | | [Practice Exam 4](#exam-4) | 125 | All four FINRA functions, weighted 9 / 11 / 91 / 14 like the real exam | | [Practice Exam 5](#exam-5) | 125 | All four FINRA functions, weighted 9 / 11 / 91 / 14 like the real exam | | [Practice Exam 6](#exam-6) | 125 | All four FINRA functions, weighted 9 / 11 / 91 / 14 like the real exam | | [Chapter 1 quiz](#quiz-1) | 15 | The Series 7 Exam and How to Pass It | | [Chapter 2 quiz](#quiz-2) | 15 | Prospecting, Communications and New Issues | | [Chapter 3 quiz](#quiz-3) | 15 | Opening and Managing Customer Accounts | | [Chapter 4 quiz](#quiz-4) | 15 | Retirement and Education Accounts | | [Chapter 5 quiz](#quiz-5) | 15 | Equity Securities | | [Chapter 6 quiz](#quiz-6) | 15 | Debt Securities: Prices, Yields and Risks | | [Chapter 7 quiz](#quiz-7) | 15 | Corporate Debt and Money Market Instruments | | [Chapter 8 quiz](#quiz-8) | 15 | U.S. Government, Agency and Mortgage-Backed Securities | | [Chapter 9 quiz](#quiz-9) | 15 | Municipal Securities | | [Chapter 10 quiz](#quiz-10) | 15 | Investment Companies: Mutual Funds, ETFs and UITs | | [Chapter 11 quiz](#quiz-11) | 15 | Variable Annuities and Insurance-Based Products | | [Chapter 12 quiz](#quiz-12) | 15 | Direct Participation Programs, REITs and Alternative Investments | | [Chapter 13 quiz](#quiz-13) | 15 | Options I: Fundamentals and Basic Strategies | | [Chapter 14 quiz](#quiz-14) | 15 | Options II: Spreads, Straddles, Index Options and Rules | | [Chapter 15 quiz](#quiz-15) | 15 | Economics, Investment Analysis and Portfolio Management | | [Chapter 16 quiz](#quiz-16) | 15 | Taxation of Investments | | [Chapter 17 quiz](#quiz-17) | 15 | Margin Accounts | | [Chapter 18 quiz](#quiz-18) | 15 | Orders, Trading, Settlement and Confirmations | | [Chapter 19 quiz](#quiz-19) | 15 | Regulation, Prohibited Practices, Complaints and Records | ### How to use these practice tests - **Timed exam mode** works like the real Series 7: 3 hours 45 minutes, no feedback until you submit. Use it for Exams 3 to 6. - **Study mode** shows the answer and explanation after each question. Use it for chapter quizzes and your first two exams. - After each exam, open the review list and reread the book section behind every miss. Follow a [study plan](https://series7.mzbacademy.com/how-to-pass-the-series-7) to stay on schedule. ### Practice test FAQ Are these Series 7 practice tests free? Yes. All six full-length exams and all 19 chapter quizzes from *Series 7 Mastery* are free to take here, with every answer explained. How are the practice exams weighted? Each 125-question exam follows FINRA's outline: about 9 questions from Function 1, 11 from Function 2, 91 from Function 3 and 14 from Function 4. Exams 2 to 6 show your score by function. What score means I'm ready for the Series 7? The passing score is 72. Aim for 80% or higher on two or three full, timed practice exams before you test. Is my progress saved? Yes, in this browser. You can leave a test and resume it later on the same device. --- # Series 7 Flashcards: 500+ Free Interactive Cards (2026) URL: https://series7.mzbacademy.com/series-7-flashcards Flashcards ## Series 7 Flashcards 500+ free interactive flashcards from *Series 7 Mastery*, organized by chapter. Flip, shuffle and mark the cards you know — your progress is saved in this browser. ### Every card, by chapter All 504 cards in list form, for quick review or printing. Open a chapter to see its cards. ### Flashcard FAQ How many Series 7 flashcards are there? More than 500: key concepts, rules, numbers and formulas for all 19 chapters, plus the glossary terms. How should I use flashcards for the Series 7? Study one chapter at a time right after reading it, mark the cards you know, and come back daily to the rest. In the last two weeks, shuffle all chapters together. --- # Series 7 Audio Lessons: 19 Chapter Reviews to Listen To URL: https://series7.mzbacademy.com/series-7-audio-lessons Audio review ## Series 7 Audio Lessons 19 short audio reviews — one per chapter of *Series 7 Mastery*. Press play to listen on your phone, in the car or at the gym; each lesson runs about two minutes. Lessons are read aloud by your device's built-in voice. On iPhone and Mac, enhanced voices in Settings → Accessibility → Spoken Content sound the most natural. ### Read the lessons Prefer to read? Here is the full text of every lesson, chapter by chapter. #### Chapter 1: The Series 7 Exam and How to Pass It The Series 7 has 125 scored questions and five unscored pretest questions, and you have three hours and forty-five minutes. The passing score is seventy-two. You need a sponsoring firm, which enrolls you by filing Form U4, and you must also pass the SIE. Most states will also require the Series 63. Function three, products and recommendations, is ninety-one of the 125 questions, so give it most of your study time. On exam day, budget about a minute and forty-five seconds per question, mark anything that takes longer than two minutes, and come back to it. There is no penalty for guessing, so never leave a question blank. For EXCEPT and NOT questions, test each choice as true or false and pick the one that is false. For BEST and MOST questions, start with the customer's objective, time horizon and risk tolerance. Finally, aim for eighty percent on full, timed practice exams before you sit for the real one. #### Chapter 2: Prospecting, Communications and New Issues FINRA sorts communications into three groups. Correspondence goes to twenty-five or fewer retail investors in thirty days. Retail communications go to more than twenty-five, and they need a principal's approval before use. Institutional communications go only to institutions. Static social media, like a profile, is a retail communication; interactive posts are supervised like correspondence. Cold calls are allowed from eight in the morning to nine at night in the called person's time zone, and do-not-call requests last five years. For new issues, the cooling-off period lasts at least twenty days. During it you may hand out the preliminary prospectus and take indications of interest, but you may not sell or take money. In a firm commitment the underwriter bears the risk; in best efforts the issuer does. Under Rule 144, restricted stock of a reporting company is held six months, and affiliates are limited to the greater of one percent of outstanding shares or four weeks of average weekly volume in any ninety days. Rule 5130 keeps restricted persons, such as broker-dealer employees, out of equity IPOs, and Rule 5131 bans spinning. #### Chapter 3: Opening and Managing Customer Accounts Every account starts with a new account form and a principal's approval. Under the Customer Identification Program you verify identity and check the OFAC list. Make a reasonable effort to get a trusted contact person, someone the firm can call about exploitation or the customer's health. Regulation Best Interest has four parts: disclosure, care, conflict of interest and compliance, and Form CRS goes to retail customers at the start. In joint tenancy with right of survivorship, the survivor gets the account; in tenancy in common, the deceased's share goes to the estate. Custodial accounts have one custodian and one minor, gifts are irrevocable and margin is not allowed. Discretion over the asset, the action or the amount needs written authority and a principal's approval, but time and price alone does not. For anti-money laundering, remember the three stages: placement, layering and integration. Currency transactions over ten thousand dollars need a CTR, suspicious activity of five thousand or more needs a confidential SAR, and splitting deposits to dodge reporting is structuring, a crime of its own. #### Chapter 4: Retirement and Education Accounts For 2026, the IRA limit is seventy-five hundred dollars, plus an eleven-hundred-dollar catch-up at age fifty. The 401(k) limit is twenty-four thousand five hundred, plus eight thousand at fifty, or eleven thousand two hundred fifty at ages sixty through sixty-three. Withdrawals before fifty-nine and a half are taxed and usually carry a ten percent penalty. Required minimum distributions start at seventy-three. Roth IRAs are funded with after-tax dollars, have income limits, no lifetime distributions, and qualified withdrawals are tax-free after five years and age fifty-nine and a half. An indirect rollover must be finished in sixty days, and employer plans withhold twenty percent, which a direct rollover avoids. SEP-IRAs are employer-funded; SIMPLE IRAs carry a twenty-five percent penalty in the first two years. 403(b)s are for schools and nonprofits, and 457s are for state and local governments. For education, 529 plans have no federal annual limit, can pay up to twenty thousand a year for K through twelve tuition, and allow a five-year gift election. Coverdell accounts are limited to two thousand dollars a year. #### Chapter 5: Equity Securities Outstanding shares are issued shares minus treasury stock. Treasury stock has no vote and gets no dividends. Under statutory voting you cast one vote per share for each seat; under cumulative voting you multiply shares by seats and can put them all on one candidate, which helps small holders. The board sets the record date, and with T plus one settlement the ex-dividend date is the same day as the record date. Preferred stock pays a fixed dividend, a percentage of one hundred dollars par. Cumulative preferred makes up missed dividends before common holders get anything. To find a conversion ratio, divide par by the conversion price; parity means the convertible and the stock are worth the same. Rights are short-term and priced below the market; warrants are long-term and priced above it. ADRs let you own foreign companies in dollars, but they carry currency risk. #### Chapter 6: Debt Securities: Prices, Yields and Risks Bonds are quoted as a percentage of one thousand dollars par, so one point is ten dollars and one basis point is one hundredth of a percent. Current yield is annual interest divided by price. For a discount bond, the yields climb: nominal, then current, then yield to maturity, then yield to call. For a premium bond, they fall in the same order, and you quote the lower of yield to call and yield to maturity. When rates rise, bond prices fall, and the longest maturities and lowest coupons move the most. Duration measures that sensitivity: price change is about duration times the change in yield, with the sign reversed. Issuers call bonds when rates fall; puttable bonds protect holders when rates rise. Accrued interest runs from the last payment date up to, but not including, settlement, on a thirty-day month, three-hundred-sixty-day year for corporates and munis. BBB minus is the lowest investment grade, and a normal yield curve slopes upward. #### Chapter 7: Corporate Debt and Money Market Instruments Secured bonds are backed by collateral: mortgage bonds by real estate, equipment trust certificates by equipment, and collateral trust bonds by securities. Debentures are unsecured, and subordinated debentures rank behind them. In liquidation the order is secured creditors, unsecured creditors, subordinated debt, preferred stock, then common stock. The Trust Indenture Act requires an indenture and an independent trustee for public corporate debt. High-yield bonds pay more because default risk is higher. Convertible bonds pay lower coupons in exchange for the conversion feature, and their prices follow the stock when it is near parity. The money market holds high-quality debt maturing in a year or less: Treasury bills, commercial paper maturing in two hundred seventy days or less, negotiable CDs of a hundred thousand dollars or more, banker's acceptances used in trade, repurchase agreements and Eurodollars. #### Chapter 8: U.S. Government, Agency and Mortgage-Backed Securities Treasury bills mature in up to fifty-two weeks and are sold at a discount. Notes run two to ten years, and bonds twenty or thirty, and both are quoted in thirty-seconds. So ninety-nine dash sixteen means ninety-nine and a half percent of par. Treasury interest is taxed federally but not by states. STRIPS are zero-coupon Treasuries, and holders owe tax each year on interest they don't receive. TIPS adjust principal for inflation. Ginnie Mae securities carry the full faith and credit of the government; Fannie Mae and Freddie Mac do not. Mortgage pass-throughs pay monthly principal and interest. When rates fall, prepayments speed up; when rates rise, they slow, which is extension risk. In CMOs, planned amortization class tranches have the most predictable cash flows, companion tranches absorb the most risk, interest-only tranches gain when rates rise, and principal-only tranches gain when rates fall. #### Chapter 9: Municipal Securities General obligation bonds are backed by taxing power and usually need voter approval; analysts look at the tax base, debt per person and overlapping debt. Revenue bonds are backed by the facility they finance, so the feasibility study, the rate covenant and debt service coverage matter most. A mill is one dollar per thousand of assessed value. Municipal interest is free of federal tax, usually free of tax in the issuer's own state, and bonds from territories like Puerto Rico are exempt everywhere. Tax-equivalent yield is the municipal yield divided by one minus the tax rate. Premiums on munis are amortized with no deductible loss, and original issue discount is tax-exempt. Notes include TANs, RANs and BANs. Competitive deals go to the lowest true interest cost. Eastern syndicates are undivided, Western syndicates are divided, and orders are filled presale, group net, designated, then member. The MSRB writes the rules but doesn't enforce them, trades are reported within fifteen minutes, and documents live on EMMA. #### Chapter 10: Investment Companies: Mutual Funds, ETFs and UITs Open-end funds sell and redeem shares continuously at net asset value, and orders get the next price computed, which is called forward pricing. The public offering price is NAV divided by one minus the sales charge, and the sales charge can't exceed eight and a half percent. Breakpoints lower the charge on larger purchases; a letter of intent covers thirteen months and can be backdated ninety days, and rights of accumulation count your existing holdings. Recommending a purchase just below a breakpoint is a violation. Class A shares have a front-end load, Class B a declining back-end charge, and Class C a level load. Closed-end funds trade on exchanges at a premium or discount, ETFs trade all day and can be shorted, and ETNs are unsecured notes with the issuer's credit risk. Fund distributions are taxable even when reinvested, and capital gains distributions are always long-term. #### Chapter 11: Variable Annuities and Insurance-Based Products In a variable annuity, the owner bears the investment risk in the separate account, so the product is both a security and an insurance contract. During accumulation you own accumulation units; at annuitization they become a fixed number of annuity units whose value changes. Payments rise when returns beat the assumed interest rate and fall when they lag it. Life-only pays the most each month; joint and last survivor pays the least. Contributions to a non-qualified annuity are after-tax, earnings come out first and are taxed as ordinary income, and a ten percent penalty applies before fifty-nine and a half. A 1035 exchange moves one annuity into another tax-free. Under Rule 2330, a principal reviews deferred variable annuity sales within seven business days, with special attention to surrender charges, older customers and frequent exchanges. Variable life policies allow loans of at least seventy-five percent of cash value after three years. #### Chapter 12: Direct Participation Programs, REITs and Alternative Investments Limited partnerships pass income and losses straight to investors. The general partner manages and has unlimited liability; limited partners are passive and can lose only what they invest. Losses are passive and can offset only passive income. Real estate programs range from existing properties, the safest, to raw land, the most speculative. Oil and gas programs range from income programs to exploratory wildcat drilling, and they offer intangible drilling cost and depletion deductions. The biggest drawback of any partnership is that it's hard to sell. REITs must pay out at least ninety percent of taxable income; they pass through income but not losses, and non-traded REITs can be very illiquid. Hedge funds and private equity are sold privately to accredited investors and often lock up money for years. Structured products depend on the issuer's credit, even when they promise principal protection. #### Chapter 13: Options I: Fundamentals and Basic Strategies A call gives the buyer the right to buy, and a put gives the buyer the right to sell. Sellers take on the obligations. Call buyers and put sellers are bullish; put buyers and call sellers are bearish. Remember: calls up, puts down. A call's breakeven is the strike plus the premium; a put's is the strike minus the premium. A call is in the money when the stock is above the strike, and a put when it's below. Time value is the premium minus intrinsic value. Buyers can lose only the premium; a naked call writer has unlimited risk. To protect a stock you own, buy a put. To earn income on it, write a covered call. To protect a short sale, buy a call. Equity options are American-style, and exercises settle T plus one in shares. The OCC assigns exercise notices to firms at random. #### Chapter 14: Options II: Spreads, Straddles, Index Options and Rules A spread is buying one option and selling another of the same type. If you paid, it's a debit spread, and you want the premiums to widen. If you were paid, it's a credit spread, and you want the options to expire. For call spreads, breakeven is the lower strike plus the net premium; for put spreads, the higher strike minus it. A long straddle, a call and a put at the same strike, profits from a big move either way; a short straddle profits from no move but has unlimited risk. Index options settle in cash, and portfolio managers buy index puts to hedge market risk. The number of contracts is portfolio value times beta, divided by the index level times one hundred. The options disclosure document is delivered at or before approval, a principal approves the account, and the customer returns the signed agreement within fifteen days. #### Chapter 15: Economics, Investment Analysis and Portfolio Management The business cycle moves through expansion, peak, contraction and trough. Building permits and stock prices lead the economy, industrial production moves with it, and the duration of unemployment lags it. The Federal Reserve runs monetary policy: buying securities and lowering rates eases, and selling securities and raising rates tightens. Congress and the President run fiscal policy through taxes and spending. In fundamental analysis, the current ratio is current assets over current liabilities, the quick ratio leaves out inventory, and the price-earnings ratio is price over earnings per share. Technical analysts watch support, resistance and trends. Diversification removes company-specific risk but not market risk. Beta measures volatility against the market, alpha measures outperformance, and the Sharpe ratio measures return per unit of risk. Real return is the nominal return minus inflation. #### Chapter 16: Taxation of Investments Gains on assets held more than a year are long-term and taxed at zero, fifteen or twenty percent; shorter holdings are taxed as ordinary income. Net capital losses can offset three thousand dollars of ordinary income a year, with the rest carried forward. Your cost basis includes reinvested distributions. Inherited assets step up to their value at death. Gifts keep the donor's basis, unless the value is lower than the basis and you sell at a loss. If you don't identify shares, the IRS assumes first in, first out. A wash sale happens when you buy the same security within thirty days before or after a loss sale; the loss is disallowed and added to the new shares' basis. In 2026 you can give nineteen thousand dollars per person without filing a gift tax return, and the lifetime exemption is fifteen million. The net investment income tax adds three point eight percent for higher earners. #### Chapter 17: Margin Accounts Regulation T, set by the Federal Reserve, requires fifty percent down, and FINRA requires at least two thousand dollars of equity. In a long account, long market value minus the debit balance equals equity. In a short account, short market value plus equity equals the credit balance. Maintenance is twenty-five percent for long accounts and thirty percent for short stocks above five dollars. A long account gets a call when market value falls below the debit divided by point seven five; a short account, when market value rises above the credit divided by one point three. Excess equity above fifty percent creates SMA, a line of credit that doesn't shrink when prices fall. Buying power is twice the SMA. Selling stock adds half the proceeds to SMA. An account between twenty-five and fifty percent equity is restricted. Since June 4, 2026, FINRA's intraday margin standards have replaced the pattern day trader rule and its twenty-five-thousand-dollar minimum. #### Chapter 18: Orders, Trading, Settlement and Confirmations A firm acting as agent charges a commission; acting as principal, it charges a markup or markdown, based on the prevailing market price. The five percent markup policy is a guideline, not a hard limit. Buy limits and sell stops sit below the market, and sell limits and buy stops sit above it. Stops become market orders once triggered; stop-limit orders may never fill. Buy limits and sell stops are reduced by the dividend on the ex-date. Fill or kill means all now or nothing; immediate or cancel allows partial fills; all or none must fill completely but not immediately. Before a short sale, the firm must locate shares, and a ten percent drop triggers Rule 201's price test. Regular-way settlement is T plus one, Reg T payment is due two business days after that, and selling before paying, called freeriding, freezes a cash account for ninety days. #### Chapter 19: Regulation, Prohibited Practices, Complaints and Records The Securities Act of 1933 regulates new issues, and the Exchange Act of 1934 regulates trading and created the SEC. Prohibited practices include churning, unauthorized trading, guarantees, selling away and misrepresentations. Borrowing from or lending to customers is allowed only under specific exceptions, and sharing in an account requires written approval and a proportional share. Manipulation, like painting the tape, and insider trading are illegal, and insider trading can bring civil penalties of up to three times the profit. Outside business activities need prior written notice, and the regulatory element of continuing education is now annual. The gift limit is three hundred dollars a year. Written complaints, including emails and texts, are kept at least four years, and arbitration is final and binding. SIPC protects customers of failed firms up to five hundred thousand dollars, including two hundred fifty thousand in cash.