Series 7 Recommendations, Tax & Retirement Practice Questions
Recommendations, Tax & Retirement makes up 7 of every 50 questions on a Tigertest Series 7 practice test. Here are 10 of the 28 questions on it, each with the answer and the reason.
Updated by the Tigertest team. Based on FINRA's Series 7 content outline. Original questions; 50 per test, weighted like the real 125-question exam, 72% to pass.
1. Regulation Best Interest's care obligation requires a rep to:
- A.Act as a fiduciary for all accounts
- B.Have a reasonable basis to recommend
- C.Recommend the lowest-cost product
- D.Disclose every product sold
Answer: B. The care obligation requires reasonable diligence, care and skill, and a reasonable basis to believe the recommendation is in the retail customer's best interest. Lowest cost alone is not required.
2. Which is NOT one of the four component obligations of Regulation Best Interest?
- A.Care obligation
- B.Conflict of interest obligation
- C.Disclosure obligation
- D.Price obligation
Answer: D. Reg BI's four components are disclosure, care, conflict of interest and compliance. Cost is a factor under the care obligation, not a separate obligation.
3. FINRA's quantitative suitability obligation addresses:
- A.Whether a series of trades is excessive
- B.Whether a fund offers breakpoints
- C.Whether a product fits any investor
- D.The customer's tax bracket and income
Answer: A. Quantitative suitability asks whether a series of recommended trades is excessive, measured by turnover and cost-to-equity ratios. Since 2020 it no longer requires proof that the rep controlled the account.
4. A 30-year-old customer with a stable job and long horizon wants growth. Which is most suitable?
- A.A short-term Treasury fund
- B.A fixed immediate annuity
- C.A diversified equity fund
- D.A money market fund
Answer: C. A long horizon and steady income support taking market risk for growth. Money market funds and immediate annuities suit liquidity or income needs.
5. A retired customer in a low tax bracket needs current income. Which is least suitable?
- A.A balanced income fund
- B.Dividend-paying blue chips
- C.Municipal bonds
- D.Investment-grade corporate bonds
Answer: C. Muni yields are lower because of the tax exemption, which is worth little in a low bracket. Taxable bonds will usually give this customer more after-tax income.
6. A customer sells stock at a loss on June 10 and buys the same stock back on June 30. Under the wash sale rule:
- A.The loss is disallowed and added to basis
- B.The loss becomes a short-term gain
- C.The loss is deferred for one year
- D.The loss is allowed in full this year
Answer: A. Buying the same security within 30 days before or after a loss sale disallows the loss; it is added to the cost basis of the new shares.
7. A customer has $8,000 of net capital losses and no capital gains this year. How much can offset ordinary income?
- A.$1,500
- B.$8,000
- C.$5,000
- D.$3,000
Answer: D. Up to $3,000 of net capital losses can offset ordinary income each year ($1,500 if married filing separately). The remaining $5,000 carries forward.
8. A customer bought stock 14 months ago and sells it at a gain. The gain is:
- A.Tax-exempt
- B.Long-term
- C.Short-term
- D.Ordinary income
Answer: B. Assets held more than one year produce long-term gains, taxed at lower rates. One year or less is short-term and taxed as ordinary income.
9. An investor inherits stock from her father. Her cost basis is generally:
- A.The value when she sells
- B.The value on the date of death
- C.Her father's original cost
- D.Zero, since she paid nothing
Answer: B. Inherited securities get a stepped-up basis to fair market value at the date of death, and the holding period is automatically long-term.
10. A customer gives stock to his daughter when it is worth more than his cost. Her cost basis is:
- A.Zero
- B.The average of the two values
- C.The value on the gift date
- D.His original cost
Answer: D. Gifted securities carry over the donor's basis when the value exceeds it. The step-up applies to inheritances, not gifts.
Practice all 28 recommendations, tax & retirement questions, and the rest of the 200-question bank, in the free Series 7 training sets. Questions you miss come back until you have mastered them.
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