Free FINRA Series 7 (General Securities Representative) Investment Products and Recommendations Practice Questions
Investment products and recommendations is the largest section on the FINRA Series 7 exam (FINRA). Questions cover equities, debt securities, options strategies, mutual funds, variable annuities, municipal bonds, margin accounts, and suitability analysis.
Sample Questions
Question 1
Easy
Which type of bond has ZERO reinvestment risk?
Solution
Choice B is correct because zero-coupon bonds pay no periodic interest — they are purchased at a deep discount and mature at par. Since there are no coupon payments to reinvest, there is no reinvestment risk when held to maturity.
Question 2
Medium
Which of the following best describes a unit investment trust (UIT)?
Solution
Choice A is correct because a UIT holds a fixed, unmanaged portfolio of securities assembled at creation and held until the trust's termination date. UIT shares are redeemable at NAV with the trust's sponsor.
Question 3
Hard
The Options Clearing Corporation (OCC) serves as the:
Solution
Choice B is correct because the OCC is the issuer and guarantor of all listed options contracts in the United States. After a trade is executed on an options exchange, the OCC interposes itself between buyer and seller, becoming the counterparty to both sides. The OCC guarantees that the writer will fulfill the obligation if the option is exercised. This eliminates counterparty (credit) risk for option holders — the holder does not need to worry about the financial ability of the specific writer to perform.
Key OCC functions:
- Issues and guarantees all listed option contracts
- Acts as counterparty to every buyer and every seller
- Processes exercises and assignments
- Adjusts contract terms for corporate actions
- Maintains margin requirements for clearing members