Series 7 Exam Last-Minute Review (2026): Complete Formulas, Options, Suitability & All Topics

Series 7 Exam Last-Minute Review

This comprehensive guide covers everything you need to review for the Series 7 exam. Master these topics and formulas to maximize your score.

Exam Structure (Updated October 2025)

Four Major Job Functions

Note: 91 of 125 questions (73%) focus on investment recommendations - this is where to concentrate your study time.

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Dump Sheet Formulas

Write these down on your scratch paper immediately when the exam begins.

Bond Formulas

$\text{Current Yield} = \frac{\text{Annual Interest}}{\text{Market Price}}$

$\text{Nominal Yield} = \frac{\text{Annual Interest}}{\text{Par Value}}$

$\text{Tax-Equivalent Yield} = \frac{\text{Municipal Yield}}{1 - \text{Tax Bracket}}$

Yield Relationship (discount bond): Coupon < Current Yield < YTM < YTC

Yield Relationship (premium bond): Coupon > Current Yield > YTM > YTC

Options Formulas

$\text{Call Breakeven} = \text{Strike Price} + \text{Premium}$

$\text{Put Breakeven} = \text{Strike Price} - \text{Premium}$

Spread Calculations: $\text{Debit Spread Max Gain} = \text{Strike Difference} - \text{Net Premium Paid}$

$\text{Debit Spread Max Loss} = \text{Net Premium Paid}$

$\text{Credit Spread Max Gain} = \text{Net Premium Received}$

$\text{Credit Spread Max Loss} = \text{Strike Difference} - \text{Net Premium Received}$

Margin Formulas

$\text{Equity (Long)} = \text{Market Value} - \text{Debit Balance}$

$\text{Equity (Short)} = \text{Credit Balance} - \text{Market Value}$

$\text{Reg T Initial Requirement} = 50\%$

$\text{Long Maintenance} = 25\%$

$\text{Short Maintenance} = 30\%$

Key Numbers

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Options - The Four Basic Positions

Position Summary

Key Concepts

"Call Up, Put Down"

• Call buyers profit when stock goes UP
• Put buyers profit when stock goes DOWN

Buyers vs Writers

• Buyers pay premium → have RIGHTS → limited risk
• Writers receive premium → have OBLIGATIONS → potentially unlimited risk

In-the-Money vs Out-of-the-Money

Intrinsic Value vs Time Value

$\text{Option Premium} = \text{Intrinsic Value} + \text{Time Value}$

• Intrinsic Value: Real value if exercised now (cannot be negative)
• Time Value: Premium above intrinsic value (hope value)

Call Intrinsic Value = Market Price - Strike Price (if positive)

Put Intrinsic Value = Strike Price - Market Price (if positive)

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Options Strategies - Spreads

Spread Basics

A spread involves buying AND selling options of the same type (both calls or both puts) on the same underlying security.

Bull Call Spread (Debit Spread)

Setup: Buy lower strike call, Sell higher strike call

Example: Buy 1 XYZ 50 call @ 5, Sell 1 XYZ 60 call @ 2

• Net Premium Paid: $5 - $2 = $3 (debit)
• Max Loss: $3 × 100 = $300 (net premium paid)
• Max Gain: ($60 - $50) - $3 = $7 × 100 = $700
• Breakeven: $50 + $3 = $53

Outlook: Moderately bullish (want stock to rise to higher strike)

Bear Put Spread (Debit Spread)

Setup: Buy higher strike put, Sell lower strike put

Example: Buy 1 XYZ 60 put @ 6, Sell 1 XYZ 50 put @ 2

• Net Premium Paid: $6 - $2 = $4 (debit)
• Max Loss: $4 × 100 = $400
• Max Gain: ($60 - $50) - $4 = $6 × 100 = $600
• Breakeven: $60 - $4 = $56

Outlook: Moderately bearish (want stock to fall to lower strike)

Bull Put Spread (Credit Spread)

Setup: Sell higher strike put, Buy lower strike put

Example: Sell 1 XYZ 60 put @ 6, Buy 1 XYZ 50 put @ 2

• Net Premium Received: $6 - $2 = $4 (credit)
• Max Gain: $4 × 100 = $400 (net premium received)
• Max Loss: ($60 - $50) - $4 = $6 × 100 = $600
• Breakeven: $60 - $4 = $56

Outlook: Moderately bullish (want stock to stay above higher strike)

Bear Call Spread (Credit Spread)

Setup: Sell lower strike call, Buy higher strike call

Example: Sell 1 XYZ 50 call @ 5, Buy 1 XYZ 60 call @ 2

• Net Premium Received: $5 - $2 = $3 (credit)
• Max Gain: $3 × 100 = $300
• Max Loss: ($60 - $50) - $3 = $7 × 100 = $700
• Breakeven: $50 + $3 = $53

Outlook: Moderately bearish (want stock to stay below lower strike)

Spread Summary Table

Memory Trick for Spreads

Debit Spreads:

• You PAY net premium (debit to account)
• Max loss = Premium paid
• Max gain = Strike difference - Premium

Credit Spreads:

• You RECEIVE net premium (credit to account)
• Max gain = Premium received
• Max loss = Strike difference - Premium

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Options Strategies - Straddles and Combinations

Long Straddle

Setup: Buy 1 call AND Buy 1 put at SAME strike and expiration

Example: Buy 1 XYZ 50 call @ 4, Buy 1 XYZ 50 put @ 3

• Total Premium Paid: $4 + $3 = $7
• Max Loss: $7 × 100 = $700 (if stock at $50 at expiration)
• Max Gain: Unlimited (upside), Strike - Premium (downside)
• Breakevens: $50 + $7 = $57 (upside), $50 - $7 = $43 (downside)

Outlook: Expect BIG move, unsure of direction (high volatility expected)

Short Straddle

Setup: Sell 1 call AND Sell 1 put at SAME strike and expiration

Example: Sell 1 XYZ 50 call @ 4, Sell 1 XYZ 50 put @ 3

• Total Premium Received: $4 + $3 = $7
• Max Gain: $7 × 100 = $700 (if stock at $50 at expiration)
• Max Loss: Unlimited (upside), Strike - Premium (downside)
• Breakevens: $57 and $43

Outlook: Expect stock to stay FLAT (low volatility expected)

Long Strangle

Setup: Buy 1 call at higher strike AND Buy 1 put at lower strike

Example: Buy 1 XYZ 55 call @ 2, Buy 1 XYZ 45 put @ 2

• Total Premium Paid: $2 + $2 = $4
• Max Loss: $4 × 100 = $400
• Breakevens: $55 + $4 = $59 (upside), $45 - $4 = $41 (downside)

Outlook: Expect BIG move, cheaper than straddle but needs bigger move

Straddle vs Strangle

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Options Strategies - Hedging

Protective Put (Married Put)

Setup: Long stock + Long put

Purpose: Protect against downside while maintaining upside

Example: Own 100 shares at $50, Buy 1 put at 45 for $2

• Max Loss: ($50 - $45) + $2 = $7 × 100 = $700
• Max Gain: Unlimited (minus premium paid)
• Breakeven: $50 + $2 = $52

Covered Call

Setup: Long stock + Short call

Purpose: Generate income, willing to sell at strike price

Example: Own 100 shares at $50, Sell 1 call at 55 for $3

• Max Gain: ($55 - $50) + $3 = $8 × 100 = $800
• Max Loss: $50 - $3 = $47 × 100 = $4,700 (if stock goes to zero)
• Breakeven: $50 - $3 = $47

Collar

Setup: Long stock + Long put + Short call

Purpose: Limit both upside and downside (often zero cost)

Example: Own 100 shares at $50, Buy 45 put for $2, Sell 55 call for $2

• Max Loss: $50 - $45 = $5 × 100 = $500
• Max Gain: $55 - $50 = $5 × 100 = $500
• Cost: $0 (premiums offset)

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Municipal Securities

Types of Municipal Bonds

GO Bond Analysis Factors

• Assessed valuation of property
• Tax collection rate
• Debt per capita
• Debt as % of assessed value
• Overlapping debt
• Population trends
• Economic diversity

Revenue Bond Analysis Factors

• Feasibility study
• Debt service coverage ratio
• Rate covenant
• Flow of funds (gross vs net revenue pledge)
• Additional bonds test
• Maintenance covenant

Flow of Funds - Revenue Bonds

Gross Revenue Pledge: Revenue → Debt Service → Operations → Reserve Net Revenue Pledge: Revenue → Operations → Debt Service → Reserve

(Net pledge is more common, allows operating expenses first)

Municipal Bond Tax Treatment

Municipal Securities Rulemaking Board (MSRB)

• Creates rules for municipal securities
• NO enforcement power (SEC and FINRA enforce)
• Rules apply to dealers, banks, and municipal advisors

Key Municipal Terms

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Corporate Securities

Types of Corporate Bonds

Bond Features

Convertible Bond Calculations

$\text{Conversion Ratio} = \frac{\text{Par Value}}{\text{Conversion Price}}$

$\text{Parity Price} = \frac{\text{Stock Price} \times \text{Conversion Ratio}}{1}$

Example: $1,000 bond convertible at $50

• Conversion Ratio: $1,000 ÷ $50 = 20 shares
• If stock at $60: Parity = 20 × $60 = $1,200

Preferred Stock

Common Stock Rights

• Voting rights (typically 1 share = 1 vote)
• Dividends (if declared)
• Preemptive rights (maintain ownership %)
• Residual claim on assets (last in bankruptcy)

Corporate Actions

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Investment Companies

Types of Investment Companies

Mutual Fund Share Classes

Mutual Fund Pricing

$\text{NAV} = \frac{\text{Total Assets} - \text{Liabilities}}{\text{Shares Outstanding}}$

$\text{POP (Public Offering Price)} = \text{NAV} + \text{Sales Charge}$

$\text{Sales Charge \%} = \frac{\text{POP} - \text{NAV}}{\text{POP}}$

Mutual Fund Fees

Breakpoints and LOI

• Breakpoints: Volume discounts on sales charges
• Letter of Intent (LOI): Commit to future purchases for breakpoint (13 months)
• Rights of Accumulation: Use existing holdings for breakpoints

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Variable Annuities and Variable Life

Variable Annuity Phases

Variable Annuity Features

Payout Options

Variable Life Insurance

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Direct Participation Programs (DPPs)

DPP Characteristics

• Flow-through taxation: Income/losses pass to partners
• Limited Partners (LPs): Limited liability, passive investors
• General Partner (GP): Unlimited liability, manages partnership
• Illiquid: No secondary market

Types of DPPs

Oil & Gas Programs

DPP Tax Benefits

• Intangible Drilling Costs (IDC): 100% deductible in year incurred
• Depletion: Cost or percentage method
• Depreciation: Equipment and improvements
• At-Risk Rules: Can only deduct up to amount at risk

Suitability for DPPs

DPPs are suitable for:

• High-income investors seeking tax benefits
• Long-term investors (10+ year horizon)
• Investors who can tolerate illiquidity
• Accredited investors (often required)

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Margin Accounts

Margin Basics

Long Margin Account

$\text{Equity} = \text{Market Value} - \text{Debit Balance}$

Example: Buy $20,000 stock on margin

• Reg T: 50% × $20,000 = $10,000 customer deposit
• Debit Balance: $10,000 (borrowed)
• If stock drops to $12,000:
  • Equity = $12,000 - $10,000 = $2,000
  • Required = 25% × $12,000 = $3,000
  • Margin call = $1,000

Short Margin Account

$\text{Equity} = \text{Credit Balance} - \text{Market Value}$

Short Sale Example: Sell short $20,000

• Credit Balance = Proceeds + Reg T = $20,000 + $10,000 = $30,000
• If stock rises to $24,000:
  • Equity = $30,000 - $24,000 = $6,000
  • Required = 30% × $24,000 = $7,200
  • Margin call = $1,200

Special Memorandum Account (SMA)

• Line of credit in margin account
• Created when equity exceeds Reg T
• Can be used for additional purchases or withdrawal
• Does NOT disappear if market value drops

Restricted Account

• When equity falls below Reg T but above maintenance
• No margin call, but can't buy more without deposit
• Any sale proceeds: 50% to SMA, 50% to reduce debit

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Customer Accounts

Account Types

UGMA/UTMA Custodial Accounts

• One custodian, one minor per account
• Custodian manages until age of majority
• Minor is beneficial owner
• Irrevocable gift
• No margin, no options (except covered calls in some states)
• Taxed at minor's rate (kiddie tax may apply)

Retirement Accounts

IRA Contribution Limits (2026)

• Under 50: $7,000
• 50 and over: $8,000 (catch-up)
• Traditional IRA: Deduction phases out with income
• Roth IRA: Contribution phases out with income

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Suitability

FINRA Rule 2111 - Suitability

Three types of suitability:

1. Reasonable-basis: Investment suitable for at least some investors
2. Customer-specific: Suitable for this particular customer
3. Quantitative: Not excessive trading (churning)

Suitability Factors

Investment Objectives Spectrum

Suitability Red Flags

• Recommending speculative investments to retirees
• Concentrated positions without diversification
• Complex products without investor understanding
• Illiquid investments for those needing liquidity
• High-risk investments for preservation objectives

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Regulations and Rules

Securities Act of 1933

• Regulates NEW issues (primary market)
• Requires registration with SEC
• Prospectus must be delivered
• Anti-fraud provisions

Securities Exchange Act of 1934

• Regulates SECONDARY market
• Created SEC
• Regulates broker-dealers
• Requires reporting (10-K, 10-Q, 8-K)

Investment Company Act of 1940

• Regulates mutual funds, closed-end funds, UITs
• Defines investment company types
• Requires registration with SEC
• Sets structure and governance rules

Investment Advisers Act of 1940

• Regulates investment advisers
• Requires registration with SEC (large) or state (small)
• Fiduciary duty to clients
• Disclosure requirements

FINRA Rules

Regulation Best Interest (Reg BI)

• SEC rule for broker-dealers
• Must act in customer's best interest
• Disclosure, Care, Conflict of Interest, Compliance
• Form CRS required

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Trading and Settlement

Order Types

Time in Force

Settlement Dates

Ex-Dividend Date

• Set by exchange (usually 1 business day before record date)
• Buy before ex-date → receive dividend
• Buy on or after ex-date → no dividend
• Stock price typically drops by dividend amount on ex-date

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Economic Factors

Interest Rate Relationships

When Interest Rates RISE:

• Bond prices FALL
• Stock prices may FALL
• Dollar may STRENGTHEN
• Consumer spending may SLOW

When Interest Rates FALL:

• Bond prices RISE
• Stock prices may RISE
• Dollar may WEAKEN
• Consumer spending may INCREASE

Yield Curve

Economic Indicators

Federal Reserve Tools

To STIMULATE economy: Lower rates, buy securities To SLOW economy: Raise rates, sell securities

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Taxes

Capital Gains

Wash Sale Rule

• Cannot deduct loss if you buy substantially identical security within 30 days before or after sale
• Holding period and basis carry over to new shares

Cost Basis Methods

Municipal Bond Taxation

• Interest: Federal tax-exempt
• In-state: Usually state tax-exempt
• Out-of-state: State taxable
• Capital gains: Always taxable
• OID (discount): Accreted annually, taxable at maturity

Annuity Taxation

• Accumulation: Tax-deferred growth
• Distributions: LIFO (gains first)
• Exclusion ratio: Portion tax-free (return of premium)
• 10% penalty before 59½

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Prohibited Practices

Market Manipulation

Other Violations

Chinese Wall

• Information barrier between departments
• Prevents sharing of MNPI
• Common between investment banking and trading

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Common Exam Traps

Trap #1: Spread Max Gain/Loss

Debit Spread: Max loss = Premium paid (NOT strike difference) Credit Spread: Max gain = Premium received (NOT strike difference)

Trap #2: Short Option Risk

• Short calls have UNLIMITED risk
• Short puts have risk to zero (strike - premium)
• Don't confuse with long options (limited to premium)

Trap #3: GO vs Revenue Bonds

• GO bonds: Backed by TAXES
• Revenue bonds: Backed by PROJECT REVENUE
• Don't confuse the backing source

Trap #4: Breakeven Direction

• Calls: Strike + Premium (go UP)
• Puts: Strike - Premium (go DOWN)
• For short options, same breakeven but profit below (puts) or above (calls)

Trap #5: Reg T vs Maintenance

• Reg T = 50% INITIAL requirement
• Maintenance = 25% (long) or 30% (short) MINIMUM
• Margin call when below maintenance, not Reg T

Trap #6: SMA

• SMA does NOT disappear when market drops
• It's a line of credit, not actual cash
• Can be used even in restricted account

Trap #7: Options Expiration

• Options expire 3rd Friday of expiration month
• European style: exercise only at expiration
• American style: exercise any time before expiration

Trap #8: Municipal Bond In-State

• Federal tax: ALWAYS exempt
• State tax: Only exempt if investor lives in issuing state
• Capital gains: ALWAYS taxable

Trap #9: DPP Liability

• General Partner: UNLIMITED liability
• Limited Partner: LIMITED to investment
• Don't confuse the two

Trap #10: Customer vs Firm Accounts

• Customer accounts: Suitability applies
• Firm accounts: Different rules
• Always check whose account is being discussed

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Underwriting and Primary Market

Types of Underwriting Commitments

Underwriting Process

1. Due Diligence - Investigate issuer
2. Registration - File with SEC
3. Cooling-Off Period - 20 days minimum
4. Red Herring - Preliminary prospectus (no price)
5. Effective Date - SEC clears registration
6. Final Prospectus - With price, delivered to buyers

Syndicate Structure

Stabilization

• Allowed: Bid at or below POP to support price
• Not Allowed: Bid above POP (manipulation)
• Must be disclosed in prospectus
• Only managing underwriter can stabilize

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ERISA and Retirement Plans

ERISA Coverage

Qualified vs Non-Qualified Plans

Defined Benefit vs Defined Contribution

Retirement Plan Contribution Limits (2026)

Required Minimum Distributions (RMDs)

• Begin at age 73 (SECURE 2.0 Act)
• Traditional IRA, 401(k), 403(b) require RMDs
• Roth IRA: NO RMDs during owner's lifetime
• Penalty for missing RMD: 25% (reduced from 50%)

Early Withdrawal Penalty Exceptions

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Money Market and Government Securities

Money Market Instruments

Treasury Securities

Agency Securities

Key Point: Only GNMA is explicitly backed by the U.S. government.

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Equity Analysis

Fundamental Analysis Ratios

Technical Analysis Terms

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Communications and Advertising

Types of Communications (FINRA Rule 2210)

Filing Requirements

Prohibited Content

• Guarantees or promises of performance
• Exaggerated claims
• Misleading statements
• Omission of material facts
• Predictions of future performance
• Cherry-picking past performance

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Anti-Money Laundering (AML)

Bank Secrecy Act Requirements

Red Flags for Suspicious Activity

• Structuring (breaking up transactions to avoid reporting)
• Reluctance to provide information
• Unusual transaction patterns
• Wire transfers to/from high-risk countries
• Third-party deposits
• Accounts with no apparent business purpose

SAR Filing

• File within 30 days of detecting suspicious activity
• Do NOT notify customer
• $5,000 threshold (or $25,000 if no suspect identified)
• Maintained for 5 years

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Options Exercise and Assignment

Options Clearing Corporation (OCC)

• Issues and guarantees all listed options
• Assigns exercises randomly to short positions
• Settles options transactions
• Standardizes contract terms

Exercise Styles

Most equity options are American style. Index options are often European style.

Automatic Exercise

• Options 1 cent or more in-the-money are automatically exercised at expiration
• Customer can give "do not exercise" instructions
• Expiration: 3rd Friday of expiration month, 4 PM ET

Assignment Process

1. OCC receives exercise notice
2. OCC assigns to clearing firm randomly
3. Clearing firm assigns to customer (FIFO or random)
4. Writer must fulfill obligation

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Regulation Best Interest (Reg BI)

Four Obligations

Form CRS Requirements

• Plain English (max 4 pages for broker-dealers)
• Describe services, fees, conflicts
• Provide at account opening
• Update within 30 days of material changes
• Post on website

Care Obligation

Must consider:

• Potential risks, rewards, and costs
• Customer's investment profile
• Whether recommendation is in customer's best interest
• No excessive trading
• Reasonable alternatives

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Portfolio and Risk Concepts

Modern Portfolio Theory

Risk Measurements

Asset Allocation by Life Stage

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Final Quick Reference

Settlement Dates

Options Strategies by Outlook

Quick Calculation Tips

Tax-Equivalent Yield:

• 4% muni, 22% bracket: 4 ÷ 0.78 = 5.13%
• 4% muni, 32% bracket: 4 ÷ 0.68 = 5.88%
• 4% muni, 37% bracket: 4 ÷ 0.63 = 6.35%

Spread Max Gain/Loss:

• Debit spread: Pay premium, max loss = premium
• Credit spread: Receive premium, max gain = premium
• Difference in strikes minus net premium = the other side

Margin:

• Reg T = 50% (you deposit)
• Debit = 50% (you borrow)
• Long maintenance = 25%
• Short maintenance = 30%

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Sources

This review is based on the FINRA Series 7 Content Outline (October 2025 version) and current FINRA rules.

Good luck on your exam!