Series 7 Cheat Sheet: 80 Must-Know Facts

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 and the options cheat sheet.