Series 7 and 6
Series 7 function 3: investments and recommendations
Practice questions on products, strategies and suitability, corrected as you go. Below: the map of the function and where to spend the most hours.
Your score · Series 7
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| Pass: scaled score of 72; here 8 of 10 correct (72%), an approximation |
| You can still miss 2 |
Practice questions written by Radif Partners from the official outline topics. They are not questions from the real exam. Progress is kept in this browser only (local storage) and never sent.
Function 3 is the Series 7. FINRA's content outline assigns it 91 of the 125 scored items, about 73% of the exam, well over twice the other three functions combined. Its title lists four tasks: informing customers about investments, recommending them, transferring assets and keeping records. In practice it is a tour of every product a general securities representative may sell, with the analysis that justifies a recommendation. Equity questions range from the rights of common and preferred holders to penny stock rules and cost basis. Packaged products cover mutual funds, ETFs, unit investment trusts, variable annuities, REITs and direct participation programs. Options run from contract terms to spreads, straddles and their tax treatment. Debt covers corporate, Treasury, agency and municipal securities, with yields, call features and the analysis of general obligation and revenue bonds. Around these sit suitability, required disclosures, market and technical analysis, and the records a customer receives. Our pool holds 154 questions for it, the largest set on the site.
Breakeven, maximum gain and loss
Breakeven per share
$53.00
| Maximum gain, 1 contract | Unlimited |
| Maximum loss, 1 contract | $300 |
| Premium for 1 contract | $300 |
One contract covers 100 shares. Calls: breakeven = strike + premium. Puts: strike - premium.
Questions, formats and fees by Radif Partners · Editorial policy · Method
The four parts of function 3
| Part | What it covers | How it tends to be asked |
|---|---|---|
| 3.1 Information and analysis | customer factors, diversification, portfolio theory, financial statements and ratios | compute a ratio, pick the right measure of liquidity or risk |
| 3.2 Recommendations | equities, packaged products, options, debt, municipal, Treasury and agency securities, hedge funds, asset-backed securities | match a product to a profile, compute a yield or a breakeven |
| 3.3 Disclosures | risks, returns, costs and fees, gift and estate taxes, market and technical analysis | name the risk, the fee or the disclosure required |
| 3.4 Account information | confirmations, statements, transfers between firms, record retention, account closing | when and what the customer receives |
The outline wording for 3.2 runs over several pages, which tells you where the variety is. The other parts are shorter and closer to rules, so they suit short revision sessions between longer product blocks.
Products, one family at a time
Equities
Know the rights that come with common stock (voting, including cumulative voting, preemptive rights, a claim on residual assets), the variants of preferred stock, and what rights and warrants do to an existing holder. The tax side asks for cost basis after stock dividends, conversions, gifts and inheritance, and for the wash sale rule.
Packaged products
Open-end funds trade at the next computed net asset value plus any sales charge; closed-end funds and REITs trade in the market at a premium or discount. Variable annuities add accumulation units, annuity units and the assumed interest rate. Direct participation programs pass income and losses through to investors and are judged first on economic soundness. The fund pricing page computes offering prices.
Debt and municipal securities
Corporate bonds bring mortgage bonds, debentures, convertibles and zero coupons; Treasuries bring bills, notes, bonds, STRIPS and TIPS. Municipal securities are the longest block of the outline: general obligation versus revenue bonds, short-term notes, refundings, call features, official statements and the tax rules for premiums and discounts. Use the bond yield calculator and the municipal bond page for the numbers.
A covered call, worked out
A customer owns 100 shares bought at $48 and writes one 50 call for a premium of $3. The premium lowers the effective cost, so the breakeven is $48 minus $3, or $45. If the stock rises above the strike, the shares are called away at $50: the most the customer can make is the gain on the stock up to the strike plus the premium, $500 on the contract. If the stock falls to zero, the loss is the cost less the premium, $4,500. The strategy suits a customer who expects a flat or slightly rising market and wants income; it does not suit one seeking unlimited upside. The calculator under the citable block gives the same figures for a single option, without the stock, and the options math page covers the four basic positions in detail.
Suitability as the common thread
Almost every product question in function 3 can turn into a suitability question. A stem gives an age, an objective and a time horizon, then four products that are all legitimate in general. The right answer is the one that matches every fact: income without credit risk points to Treasuries, a high tax bracket to municipal bonds, a long horizon and a wish for growth to equity funds. Read the profile before the choices, and look for the one fact that disqualifies three of them.
Planning around 91 items
A function this large deserves most of the study calendar and most of the practice sets. Work it in blocks by product family, with a practice set at the end of each block, and come back to earlier families every week so they do not fade. The full list of our questions with answers sits on the sample questions page; the practice test serves them ten at a time with corrections.