Series 7 Exam For Dummies with Online Practice Tests

Steven M. Rice earned an exceptionally high score on the Series 7 exam and soon began tutoring others in the broker dealership where he worked as a stockbroker. He developed and designed the online Empire Stockbroker Training Institute and has coauthored a complete library of securities training materials.

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: So You Want to Sell Securities: 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


Securing Sponsorship and Signing Up 9


Taking a Peek at the Tested Topics 12


Understanding the Exam Format and Other Exam Details 13


Chapter 2: Preparing for the Series 7 Exam 19


Courses and Training Materials: Determining the Best Way to Study 19


Managing Your Study Time Wisely 22


Exploring Study Strategies 26


Developing Solid Test-Taking Skills 26


Knowing When You’re Ready 30


Chapter 3: Examining and Mastering Question Types 31


Familiarizing Yourself with Question Formats 31


Shredding the Questions: Tips and Tricks 38


Chapter 4: Surviving Test Day 43


Composing Yourself the Day Before 43


Making the Most of the Morning 44


Arriving on the Scene 45


Taking the Exam 46


Getting the Results: Drum Roll Please 47


Part 2: Mastering Basic Security Investments 49


Chapter 5: Underwriting Securities 51


Bringing New Issues to the Market 51


Reviewing Exemptions 61


Chapter 6: Corporate Ownership: Equity Securities 65


Beginning with the Basics: Common Stock 65


Getting Preferential Treatment: Preferred Stock 71


Securities with a Twist 74


Chapter 7: Debt Securities: Corporate and U.S Government Loans 77


Tackling Bond Terms, Types, and Traits 77


Making Basic Bond Price and Yield Calculations 81


Determining the Best Investment: Comparing Bonds 86


Exploring U.S Government Securities 90


Playing It Safe: Short-Term Loans or Money Market Instruments 95


Chapter 8: Municipal Bonds: Local Government Securities 99


General Obligation Bonds: Backing Bonds with Taxes 99


Revenue Bonds: Raising Money for Utilities and Such 103


The Primary Market: Bringing New Municipal Bonds to Market 106


Examining Other Types of Municipal Bonds on the Test 109


Don’t Forget Municipal Notes! 112


Municipal Fund Securities 114


Understanding the Taxes on Municipal Bonds 116


Following Municipal Bond Rules 118


Gathering More Municipal Bond Info 122


Part 3: Delving Deeper Into Security Investments 125


Chapter 9: Borrowing Money and Securities: The Long and Short of Margin Accounts 127


Getting the Paperwork Out of the Way 128


Introducing Long and Short Margin Accounts 128


Playing by the Federal Reserve Board’s Rules 129


Opening a Margin Account: The Initial Requirements 130


Calculating Debit and Equity in Long Margin Accounts 132


Making Short Work of Calculations in Short Margin Accounts 133


Let the Good Times Roll: Handling Excess Equity 135


Looking at Limits When the Market Goes the Wrong Way 140


Chapter 10: Delivering Diversification with Packaged Securities 145


Diversifying through Management Investment Companies 145


Considering Other Investment Company Options 157


Reducing Real Estate Risk with REITs 158


Adding Annuities to a Portfolio 159


Exploring Variable Life and Variable Universal Life Insurance 163


Investment Company Rules 164


Chapter 11: Working with Direct Participation Programs 169


Searching for Identity: What DPPs Are (and Aren’t) 169


The DPP Characters: General and Limited Partners 170


Pushing through Partnership Paperwork 171


Types of DPP Offerings 173


Passive Income and Losses: Looking at Taxes on Partnerships 173


Evaluating Direct Participation Programs 173


Chapter 12: Options: The Right to Buy or Sell at a Fixed Price 179


Brushing Up on Option Basics 179


Incorporating Standard Option Math 184


Mastering Complex Option Calculations 192


Nonequity Options 207


Gaining Additional Option Info 209


Part 4: Taking Care of Your Customers and Playing By The Rules 217


Chapter 13: Doing a Little Market Research: Portfolio and Securities Analysis 219


Knowing Your Customer: Portfolio Analysis 219


Knowing Your Securities and Markets: Securities Analysis 225


Chapter 14: Going to Market: Orders and Trades 237


Shopping at Primary and Secondary Markets 237


Making the Trade 238


Understanding the Role of a Broker-Dealer 241


Receiving Orders from Customers 243


Designated Market Maker and the Super Display Book (SDBK) 248


Chapter 15: Making Sure the IRS Gets Its Share 253


Everything in Its Place: Checking Out Tax and Income Categories 253


Noting Taxes on Investments 254


Presenting Gift and Estate Tax Rules 262


Exploring Retirement Plans 264


Chapter 16: No Fooling Around: Rules and Regulations 271


The Market Watchdogs: Securities Regulatory Organizations 271


Following Protocol When Opening Accounts 273


Trading by the Book When the Account Is Open 284


Committing Other Important Rules to Memory 295


Part 5: A Couple Practice Exams 301


Chapter 17: Practice Exam 1 303


Chapter 18: Answers and Explanations to Practice Exam 1 323


Making the Grade 340


Answer Key for Practice Exam 1 341


Chapter 19: Practice Exam 2 343


Chapter 20: Answers and Explanations to Practice Exam 2 363


Knowing the Score 378


Answer Key for Practice Exam 2 379


Part 6: The Part of Tens 381


Chapter 21: Ten Series 7 Exam Traps to Avoid 383


Easing Up on the Studying 383


Assuming the Question’s Intent 384


Reading into the Question 384


Becoming Distracted When Others Finish 384


Not Dressing for Comfort 384


Forgetting to Breathe 385


Trying to Work Out Equations in Your Head Instead of Writing Them Down 385


Spending Too Much Time on One Question 385


Changing Your Answers for the Wrong Reasons 386


Calculating Your Final Score Prematurely 386


Chapter 22: Ten Ways to Start Your Career Off Right 387


Win at the Numbers Game 387


Be an Apprentice 388


Do Your Homework 388


Treat the Minnow like a Whale 388


Smile When You Dial 388


When a Security Falls, Don’t Be a Stranger 388


Put In the Hours 389


Broaden Your Horizons 389


Pay Yourself First 389


Set Some Goals: The Brass Ring 390


Appendix: Important Figures and Formulas 391


Index 393