Series 7 Equity Securities Practice Questions

Correct answer: A. $3

Intrinsic value = stock price minus exercise price = $46 - $40 = $6. The warrant trades at $9, so the premium (time value) above intrinsic value = $9 - $6 = $3.

• AA. Intrinsic value is $46 - $40 = $6, and the warrant trades at $9, so the premium (time value) is $9 - $6 = $3.
• BB. $0 ignores that the warrant trades above its intrinsic value; there is a premium here.
• CC. $6 is the intrinsic value itself, not the premium above intrinsic value.
• DD. $9 is the warrant's full market price, not just the time-value portion above intrinsic value.

• Source: Exam outline: FINRA Series 7 Content Outline, accessed October 2026

Correct answer: A. Cumulative voting

Cumulative voting allows a shareholder to allocate all of their votes (shares held × number of board seats up for election) to one or a few candidates, improving the odds minority shareholders can concentrate votes to elect a director. Statutory voting allows only up to the number of shares held per open seat, favoring majority shareholders.

• AA. Correct.
• BB. Incorrect. Statutory voting favors majority shareholders.
• CC. Incorrect. Proxy voting is simply a mechanism for voting by absentee ballot, unrelated to minority influence.
• DD. Incorrect. Preemptive rights relate to maintaining proportional ownership in new share issuances, not board elections.

• Source: Exam outline: FINRA Series 7 Content Outline, accessed October 2026

Correct answer: D. An arbitrary accounting value with no necessary relationship to the stock's market value

Par value for common stock is a nominal, arbitrary accounting figure stated on the stock certificate and used to compute the 'common stock' line item on the balance sheet (par value × shares outstanding). It has no bearing on market price, no redemption guarantee, and no floor-price effect. Unlike bonds, where par typically equals the maturity redemption value, common stock has no maturity date and is not redeemed by the issuer.

• AA. Par value is not a floor or minimum trading price - common stock can and does trade below its stated par value in the market or on an exchange.
• BB. Common stock carries no redemption guarantee at par or otherwise. That concept applies to instruments like bonds or preferred stock, not common shares.
• CC. Par value is unrelated to the actual IPO subscription price, which is typically set well above a nominal par value.
• DD. Correct. Par value on common stock is simply an arbitrary accounting/bookkeeping figure with no necessary connection to the stock's actual market value.

• Source: Exam outline: FINRA Series 7 Content Outline, accessed October 2026

Correct answer: A. $120

Conversion value equals shares received times the common stock price: 4 x $30 = $120. It differs from par value and the $5 annual dividend.

• AA. 4 shares x $30 = $120.
• BB. This is the par value, not the value of the common shares received.
• CC. This is not tied to the conversion calculation; it ignores the share ratio and price.
• DD. This overstates the value; it does not result from 4 x $30.

• Source: Exam outline: FINRA Series 7 Content Outline, accessed October 2026

Correct answer: A. 100 votes

Under statutory voting, a shareholder gets one vote per share, per open board seat, but cannot combine or concentrate those votes on a single candidate. Maximum is shares owned (100) for any one candidate. Cumulative voting is the method that would let the investor pool votes (up to 300) behind a single nominee.

• AA. Under statutory (regular) voting, a shareholder casts up to one vote per share for each open board seat, so 100 shares allow a maximum of 100 votes for any single candidate.
• BB. 300 votes for a single candidate would reflect cumulative voting, where votes can be pooled and concentrated, not statutory voting.
• CC. There is no basis for splitting the vote total into 33; statutory voting doesn't divide votes this way.
• DD. Allocating a pooled 300-vote total across candidates describes cumulative voting, not the statutory voting method described in the question.

• Source: Exam outline: FINRA Series 7 Content Outline, accessed October 2026

Correct answer: D. 6 months

Rule 144 requires a 6-month minimum holding period for restricted securities of issuers that are current in their reporting obligations under the Exchange Act, before affiliates (or non-affiliates) may sell. If the issuer is NOT subject to (or not current in) reporting requirements, the holding period extends to 1 year. Affiliates must also comply with ongoing volume limitations, manner-of-sale requirements, and Form 144 filing after the holding period is satisfied. The holding period alone doesn't remove all Rule 144 restrictions for an affiliate.

• AA. 3 months is too short and does not correspond to any Rule 144 holding period for restricted securities.
• BB. 2 years overstates the required holding period; it does not apply under Rule 144 for a reporting-current issuer.
• CC. 1 year is the holding period that applies when the issuer is not current in its reporting obligations (or is a non-reporting issuer), not when the issuer is current.
• DD. Correct. For a reporting issuer current in its Exchange Act filings, Rule 144 requires a minimum 6-month holding period before an affiliate may sell restricted securities.

• Source: 17 CFR § 230.144, accessed October 2026

Correct answer: B. Currency exchange risk, since the underlying dividends are declared in the foreign currency and converted to U.S. dollars by the depositary bank

ADRs represent ownership of foreign shares held in custody by a U.S. depositary bank, which collects dividends in the foreign currency and converts them to U.S. dollars for distribution to ADR holders. This currency conversion introduces exchange-rate risk that a holder of a purely domestic stock does not face. ADRs do trade on U.S. exchanges and OTC markets (making choice A false), carry no general-partner liability (choice C is fabricated), and are not subject to mandatory reinvestment (choice D is fabricated).

• AA. ADRs are specifically structured to trade on U.S. exchanges (NYSE, Nasdaq) and over-the-counter, so marketability isn't a unique disadvantage versus a domestic stock.
• BB. Correct. Because the underlying shares pay dividends in the foreign currency, which the depositary bank must convert to U.S. dollars, ADR holders bear currency exchange risk that a comparable domestic stockholder never faces.
• CC. ADR holders are shareholders with normal limited liability, not general partners of the foreign company. This describes a general partnership structure, not an ADR.
• DD. ADR dividends are paid out in cash to holders (after currency conversion), not automatically and mandatorily reinvested.

• Source: Exam outline: FINRA Series 7 Content Outline, accessed October 2026

Correct answer: D. $27.50

First find the conversion ratio: par value ($100) / conversion price ($25) = 4 shares of common per preferred share. Parity price of common = preferred market price / conversion ratio = $110 / 4 = $27.50. This is the common stock price at which converting the preferred would be a breakeven proposition.

• AA. $25.00 is the conversion price used to determine the conversion ratio, not the parity price of the common stock.
• BB. $4.40 appears to invert the calculation (dividing shares by price instead of price by shares), producing an incorrect result.
• CC. $110.00 is the current price of the preferred stock itself, not the equivalent (parity) price of the common stock it converts into.
• DD. Correct. Conversion ratio = $100 par ÷ $25 conversion price = 4 shares; parity price = $110 preferred price ÷ 4 shares = $27.50.

• Source: Exam outline: FINRA Series 7 Content Outline, accessed October 2026