Series 7 Exam 2022-2023 For Dummies with Online Practice Tests
, by Rice, Steven M.
- ISBN: 9781119796831 | 1119796830
- Cover: Paperback
- Copyright: 6/2/2021
The study tool you need for the Series 7 Exam
Your gateway to the world of finance is the Series 7 Exam: pass it and you’re in for a rewarding career as a stockbroker. You don’t have to study for this important exam alone—Series 7 Exam For Dummies gives you all the tips, tricks, and practice you need to obtain your required certification.
This book smartly balances three areas of study in one convenient package: the topics on the exam, how to prepare for test day and to take the exam, and practice tests. Find in this book:
- How to sign up for the test, and tips to get through test day
- Different study strategies
- The basics of security investments, such as equity securities and municipal bonds
- More advanced security topics, such as margin accounts and packaged securities
- How to conduct market research, such as portfolio and securities analysis
- Legal concerns: IRS, rules, and regulations
- Chapter exams and online practice quizzes
With Series 7 Exam For Dummies as your study guide, you’ll be ready to tackle the 125 exam questions. Whether it’s a question about the underwriting process, investment companies, or income-tax implications, you’ll find all the information to prepare in this resourceful book.
Your stockbroker career is just one certification away—get your copy of Series 7 Exam For Dummies (with included online practice tests) to get started on your career you’ve worked hard for.
Steven M. Rice is a partner and instructor at Empire Stockbroker Training Institute, one of the country’s leading schools for securities industry training. Rice is the author of Securities Industry Essentials Exam For Dummies.
Introduction 1
About This Book 1
Foolish Assumptions 2
Icons Used in This Book 2
Beyond the Book 2
Where to Go from Here 3
Part 1: Gearing Up for the Series 7 Exam 5
Chapter 1: Introducing the Series 7 Exam 7
What Is the Series 7 Exam, Anyway? 7
Profiling the Series 7 Exam-Taker 8
One’s Not Enough: Tackling the Series 63 or Series 66 8
Series 63: Uniform Securities Agent State Law Exam 9
Series 66: Uniform Combined State Law Exam 9
Securing Sponsorship and Signing Up 9
Filling out an application to enroll 9
It’s a date! Scheduling your exam 10
Planning ahead for special accommodations 10
Just in case: Cancelling as an option 11
Taking a Peek at the Tested Topics 12
Understanding the Exam Format and Other Exam Details 14
Exam basics 14
Ten additional trial questions 14
The computerized format and features 14
Exhibits 15
Receiving and Evaluating Your Score 16
You passed! Now what? 16
So you need a do-over: Retaking the exam 16
Chapter 2: Preparing for the Series 7 Exam 19
Courses and Training Materials: Determining the Best Way to Study 19
Back to school: Attending a prep course 20
Selecting prep material to study on your own 21
Managing Your Study Time Wisely 23
Blocking out some time to study 23
It’s a plan: Getting into a study routine 23
Give it a rest: Taking short breaks 24
Staying focused from day to day 25
Devoting time to practice tests 25
Avoiding study groups 26
Staying in shape 26
Exploring Study Strategies 26
Developing Solid Test-Taking Skills 27
Read the question carefully 27
Look for phrases that lead to the topic tested 27
Work with what you have 27
Don’t obsess; mark for review 28
Keep track of time 28
Master the process of elimination 29
Maintain your concentration 29
Think carefully before changing your answers 29
Use the scrap paper wisely 29
Knowing When You’re Ready 30
Chapter 3: Examining and Mastering Question Types 31
Familiarizing Yourself with Question Formats 31
Working with the straight shooters: The straightforward types 32
Encountering quirky questions with qualifiers 33
Roman hell: Complex multiple choice 34
Looking at exhibits: Series 7 diagram questions 36
Shredding the Questions: Tips and Tricks 38
Focusing on key information 39
Answer me this: Picking the correct answer 39
Don’t make the same mistake twice 42
Chapter 4: Surviving Test Day 43
Composing Yourself the Day Before 43
Making the Most of the Morning 44
Arriving on the Scene 44
Taking advantage of one last chance to cram 45
Signing in 45
Getting seated 45
Taking the Exam 45
Getting the Results: Drum Roll Please 46
Part 2: Mastering Basic Security Investments 47
Chapter 5: Underwriting Securities 49
Bringing New Issues to the Market 49
Starting out: What the issuer does 49
Role call: Introducing the team players 53
Agreement among underwriters 54
Selling group agreement 55
Stabilizing bids 55
Who gets what: Distributing the profits 55
Agreeing to sell your share: Western versus Eastern accounts 56
Getting the skinny on the issue and issuer: The prospectus 57
Reviewing Exemptions 59
Exempt securities 59
Exempt transactions 60
Testing Your Knowledge 62
Answers and Explanations 65
Chapter 6: Corporate Ownership: Equity Securities 67
Beginning with the Basics: Common Stock 67
Understanding a stockholder’s voting rights 68
Categorizing shares corporations can sell 69
Considering the par value of common stock 70
Sharing corporate profits through dividends 70
Penny stocks 72
Getting Preferential Treatment: Preferred Stock 73
Considering characteristics of preferred stock 73
Getting familiar with types of preferred stock 74
Securities with a Twist 76
Opening national borders: ADRs 76
Rights: The right to buy new shares at a discount 77
Warrants: The right to buy stock at a fixed price 78
Testing Your Knowledge 78
Answers and Explanations 81
Chapter 7: Debt Securities: Corporate and U.S. Government Loans 83
Tackling Bond Terms, Types, and Traits 83
Remembering bond terminology 83
Comparing secured and unsecured bonds 85
Additional bond types 86
Making Basic Bond Price and Yield Calculations 87
Finding bond yields 88
Using seesaw calculations for price and yields 89
Calculating accrued interest 90
Determining the Best Investment: Comparing Bonds 92
Considering bond credit ratings 92
Contrasting callable and put bonds 93
Popping the top on convertible bonds 94
Exploring U.S. Government Securities 96
Understanding the types and characteristics of U.S. government securities 97
Agency securities 98
In the tranches: Delving into packaged mortgages (CMOs) 99
CMO communications 101
Backed by debt: Collateralized debt obligations (CDOs) 102
Playing It Safe: Short-Term Loans or Money Market Instruments 102
Structured Products 103
Testing Your Knowledge 104
Answers and Explanations 107
Chapter 8: Municipal Bonds: Local Government Securities 109
General Obligation Bonds: Backing Bonds with Taxes 109
General characteristics of GOs 110
Analyzing GO bonds 110
Revenue Bonds: Raising Money for Utilities and Such 113
General characteristics of revenue bonds 114
Analyzing revenue bonds 114
The Primary Market: Bringing New Municipal Bonds to Market 116
Escrow requirements 118
Call features 118
Examining Other Types of Municipal Bonds on the Test 119
Municipal bond diversity of maturities 120
Specific types of municipal securities 121
Taxable municipal bonds 122
Don’t Forget Municipal Notes! 122
Municipal Fund Securities 124
Section 529 plans 124
ABLE accounts 125
Local government investment pools 125
Municipal fund securities advertisements 125
Understanding the Taxes on Municipal Bonds 126
Comparing municipal and corporate bonds equally 126
Scot-free! Taking a look at triple tax-free municipal bonds 127
Pricing of municipal securities and other mathematical calculations 127
Following Municipal Bond Rules 128
Confirmations 129
Advertising and record keeping 129
Commissions 129
“G” even more rules 130
Gathering More Municipal Bond Info 132
The bond resolution (indenture) 132
Legal opinion 132
Official statement 133
The Bond Buyer 133
Additional info 134
Testing Your Knowledge 135
Answers and Explanations 138
Part 3: Delving Deeper into Security Investments 141
Chapter 9: Borrowing Money and Securities: The Long and Short of Margin Accounts 143
Getting the Paperwork Out of the Way 144
Introducing Long and Short Margin Accounts 144
Playing by the Federal Reserve Board’s Rules 145
Regulation T 145
Margin call 146
Opening a Margin Account: The Initial Requirements 146
Starting long accounts 147
Opening short accounts 148
Calculating Debit and Equity in Long Margin Accounts 148
Long market value 148
Minus debit balance 148
Equals equity 149
Putting it all together 149
Making Short Work of Calculations in Short Margin Accounts 150
Short market value 150
Plus equity 150
Equals the credit balance 150
Putting the equation together 151
Let the Good Times Roll: Handling Excess Equity 152
SMAs for long margin accounts 152
Loan value 154
SMAs for short margin accounts 154
Playing it SMA/RT: Using buying and shorting power for good 155
Buying power for pattern day trading accounts 156
Looking at Limits When the Market Goes the Wrong Way 156
Checking out restricted accounts 156
Keeping up with minimum maintenance 158
Testing Your Knowledge 160
Answers and Explanations 163
Chapter 10: Delivering Diversification with Packaged Securities 167
Diversifying through Management Investment Companies 168
Comparing open- and closed-end funds 168
Keeping your customer’s investment objectives in mind 171
Dealing with discounts and methods of investing 174
Figuring the sales charge and public offering price of open-end funds 177
Considering Other Investment Company Options 179
Face-amount certificate companies 179
Unit investment trusts (UITs) 179
Exchange-Traded Funds (ETFs) 180
Reducing Real Estate Risk with REITs 180
Adding Annuities to a Portfolio 181
Looking at fixed annuities 182
Checking out variable annuities 182
Putting money into (and receiving money from) annuities 183
Exploring Variable Life and Variable Universal Life Insurance 185
Variable life 185
Variable universal life 185
1035 tax-free exchange 186
Investment Company Rules 186
Investment company sales literature 186
Advertisements by an investment company (section 10) 187
Investment company rankings in retail communication 187
Even more rules 188
Testing Your Knowledge 189
Answers and Explanations 191
Chapter 11: Working with Direct Participation Programs 193
Searching for Identity: What DPPs Are (and Aren’t) 193
The DPP Characters: General and Limited Partners 194
Pushing through Partnership Paperwork 195
Partnership agreement 195
Certificate of limited partnership 195
Subscription agreement 196
Types of DPP Offerings 197
Private placements 197
Public offerings 197
Passive Income and Losses: Looking at Taxes on Partnerships 197
Evaluating Direct Participation Programs 198
Types of Partnerships 198
Real-estate partnership info 198
Equipment leasing 200
Oil and gas 200
Testing Your Knowledge 202
Answers and Explanations 204
Chapter 12: Options: The Right to Buy or Sell at a Fixed Price 205
Brushing Up on Option Basics 206
Reading an option 206
Looking at call options: The right to buy 207
Checking out put options: The right to sell 207
Getting your money back: Options in-, at-, or out-of-the-money 208
Paying the premium: The cost of an option 209
Incorporating Standard Option Math 211
Buying or selling call options 211
Buying or selling put options 214
Trading options: Opening and closing transactions 216
Mastering Complex Option Calculations 218
Long straddles and combinations 218
Short straddles and combinations 220
Break-even points for straddles and combinations 222
Spreads 222
Got it covered: Stock/option contracts 226
Off the charts: Multiple option contracts 228
Spending time on LEAPS: Long-term options 231
Dividends and splits, more or less 231
Nonequity Options 233
Index options 233
Yield-based options 234
Foreign currency options 235
Gaining Additional Option Info 235
Clearing through the OCC 235
Getting the go-ahead: Registered options principal 235
That’s ODD: Options risk disclosure document 236
Special statement for uncovered option writers 236
OAA: Options account agreement 236
Last trade, last exercise, and expiration of an option 237
Exercise and assignment 237
Margin on options 238
Taxes on options 239
Some additional option rules 240
Testing Your Knowledge 242
Answers and Explanations 248
Part 4: Taking Care of Your Customers and Playing by the Rules 253
Chapter 13: Portfolio and Securities Analysis 255
Knowing Your Customer: Portfolio Analysis 255
Investment objectives 256
Factors that influence your customer’s investment profile 257
Asset allocation 258
Modern portfolio theory 259
Capital Asset Pricing Model (CAPM) 259
Strategizing with portfolio management policies 260
Knowing Your Securities and Markets: Securities Analysis 261
Regarding risk 261
Mitigating risk with diversification 262
Fundamental analysis 263
Technical analysis 269
Showing the work: Research reports 271
Testing Your Knowledge 272
Answers and Explanations 275
Chapter 14: Going to Market: Orders and Trades 277
Shopping at Primary and Secondary Markets 277
Buying new in the primary market 277
Buying used in the secondary market 278
Making the Trade 278
Auctioning securities at securities exchanges 278
Negotiating trades over-the-counter 279
Understanding the Role of a Broker-Dealer 281
Firm versus subject quotes 282
Traders 282
Receiving Orders from Customers 283
Recommending OTC equity securities 283
Talking about order types 283
Handling limit and stop orders 285
Factoring in order features 286
Designated Market Maker and the Super Display Book (SDBK) 288
Adjusting orders for dividends and splits 290
Trade reporting systems 291
Regulation NMS (National Market System) 292
Trading halts: NYSE Rule 80B 292
Testing Your Knowledge 293
Answers and Explanations 295
Chapter 15: Making Sure the IRS Gets Its Share 297
Everything in Its Place: Checking Out Tax and Income Categories 297
Touring the tax categories 298
Looking at types of income 298
Noting Taxes on Investments 298
Interest income 299
Alternative minimum tax 299
Dividends 299
At the sale: Capital gains and losses 300
Return of capital 304
Cost basis adjustments on bonds: Accretion and amortization 304
Presenting Gift and Estate Tax Rules 307
Gift taxes 307
Estate taxes 308
Exploring Retirement Plans 308
Tax-qualified plans 308
Employee Retirement Income Security Act (ERISA) 309
Non-qualified plans 311
IRA types and contribution limits 311
Transfers and rollovers 313
Coverdell Education Savings Accounts 314
Testing Your Knowledge 314
Answers and Explanations 317
Chapter 16: No Fooling Around: Rules and Regulations 319
The Market Watchdogs: Securities Regulatory Organizations 319
The Securities and Exchange Commission 319
Self-regulatory organizations 320
Following Protocol When Opening Accounts 321
Filing the facts on the new account form 321
Closing customer accounts 323
Selecting the appropriate type of account 323
Account registration types 325
Standards and required approvals of public communications 329
Financial exploitation of specified adults 330
Regulation S-P 331
Reporting requirements 331
Trading by the Book When the Account Is Open 332
Filling out an order ticket 332
Checking your calendar: Payment and settlement dates 334
Confirming a trade 335
Meeting the requirements for good delivery 336
Following up with account statements 339
Keeping your dividend dates straight 339
Handling complaints 341
Transferring accounts 342
Committing Other Important Rules to Memory 343
The Telephone Act of 1991 343
The 5 percent markup policy 343
Other violations 344
Regulation FD 345
Record-keeping 346
Negotiable instruments drawn from a customer’s account 347
Disclosure of control relationships 347
Customer protection rule 347
Networking arrangements 347
Uniform Practice Code (UPC) 348
Supervision 348
Testing Your Knowledge 348
Answers and Explanations 353
Part 5: A Couple Practice Exams 355
Chapter 17: Practice Exam 1 357
Practice Exam 1 Answer Sheet 359
Chapter 18: Answers and Explanations to Practice Exam 1 377
Making the Grade 394
Answer Key for Practice Exam 1 395
Chapter 19: Practice Exam 2 397
Practice Exam Part 2 Answer Sheet 399
Chapter 20: Answers and Explanations to Practice Exam 2 417
Knowing the Score 432
Answer Key for Practice Exam 2 433
Part 6: The Part of Tens 435
Chapter 21: Ten Series 7 Exam Traps to Avoid 437
Easing Up on the Studying 437
Assuming the Question’s Intent 438
Reading into the Question 438
Becoming Distracted When Others Finish 438
Not Dressing for Comfort 438
Forgetting to Breathe 439
Trying to Work Out Equations in Your Head Instead of Writing Them Down 439
Spending Too Much Time on One Question 439
Changing Your Answers for the Wrong Reasons 440
Calculating Your Final Score Prematurely 440
Chapter 22: Ten Ways to Start Your Career Off Right 441
Win at the Numbers Game 441
Be an Apprentice 442
Do Your Homework 442
Treat the Minnow like a Whale 442
Smile When You Dial 442
When a Security Falls, Don’t Be a Stranger 442
Put In the Hours 443
Broaden Your Horizons 443
Pay Yourself First 443
Set Some Goals: The Brass Ring 444
Appendix: Important Figures and Formulas 445
Index 447
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