200 Series 7 Suitability Questions
December 10, 2023

200 Series 7 Suitability Questions with Answers and Very Detailed Explanations (41 pages of explanations covering lots of Suitability concepts) The explanations reflect some of the most important suitability concepts from Series 7 Exam Tutor's materials that we use in tutoring sessions - The files will be available after the purchase is completed.

To answer Series 7 Suitability Questions, you need to know how to profile clients and prioritize their information. When series 7 exam test takers tackle suitability questions he or she can usually narrow the answers choices down to two choice but selecting the correct one can be challenging. Each series 7 suitability question is different and will have different factors to consider, so there is no one method that can be applied to each suitability question. The most important suitability factors to consider are risk tolerance. time horizon, taxes, liquidity and financial resources. In general, risk tolerance is the most important but time horizon is a close second. Once you have assessed the suitability information, you need to select the correct investment for the client. Each product has unique characteristics but I would focus more on characteristics that make a product riskier or safer.

Lets dig deeper into some of series 7 suitability factors:

Risk tolerance: When in doubt, prioritize risk tolerance over all other risk factors. Other things to consider would be overlapping suitability as it relates to risk tolerance. A short time horizon or high liquidity is often associated with a low risk tolerance. While no liquidity needs and a long time horizon may be associated with a high risk tolerance. Examples of Investments that are suitable for a person with a low risk tolerance would include, government bonds, money market securities, and fixed annuities. Examples of investment that are suitable for a person with a high risk tolerance would include, emerging markets funds, small cap stocks and options

Time Horizon: Time horizons can be short, intermediate or long. Low risk investments would be suitable for people with short time horizons while high risk investments might be suitable for a person with a long time horizon. Of course, there are exceptions like options, which are a high risk investment but people who invest in them have a short time horizon.

Tax Considerations: If a customer is in a high tax bracket wants income, the main investment from a series 7 suitability perspective, to recommend would be a municipal bond. If a customer is in a low tax bracket and wants income, you are going to recommend a taxable bond.

Liquidity Needs: If a customer needs to access money in a very short period of time, the person would have high liquidity needs. The question might be focused on the person setting aside money for a down payment for a house. In this situation, a suitable recommendation would be a money market security or money market mutual fund.

Financial Situation: Does the person have a high net worth or a low net worth. If a person has substantial wealth, additional investment options can make sense such as investments in hedge funds, etc.

You can try the following series 7 suitability questions. If you need help with series 7 suitability questions or another topic on the series 7 exam, you can reach out to tutor@series7examtutor.com

Sample Series 7 Suitability Questions

These suitability questions are a sample of Series 7 Exam Tutor's complete file of suitability questions. At the moment, we have over 400 series 7 suitability or suitability related questions. Our goal is to have 500 suitability or suitability related questions. To learn or reinforce concepts, we use suitability questions during tutoring sessions.

Sample Series 7 Suitability Question 1

A customer of yours holds 1000 shares of XYZ stock and would like to generate income through the use of options, Which of the following would you recommend to her?
A) Sell calls on XYZ

B) Buy calls on XYZ
C) Sells puts on XYZ
D) Buy pus on XYZ

Sample Series 7 Suitability Question 2

Your customer has expressed interest in a few bond she has identified as private activity bonds. The bonds have attractive yields but he read that it is possible that the interest on these bonds may not be tax exempt. What should you explain to the customer?

A) Unless the bond is qualified, the interest would not likely be tax exempt.

B) The interest on all private activity bonds is tax exempt

C) The interest on all private activity bonds is taxable

D) Only the capital gains on private activity bonds would be tax exempt.

Sample Series 7 Suitability Question 3

256) You meet with a new customer, a 28-year old, single person who initially tells you that his objective is growth. He earns $65,000 per year and would like to retire at the age of 60. The customer goes on to say that he lost a lot of money in the stock market in 2008 and now has a low risk tolerance. Which of the following should you recommend or explain to the customer.

A) 90% equities and 10% bonds

B) 80% equities and 20% bonds

C) You should explain to the customer that a growth objective is incompatible with a low risk tolerance

D) 30% stocks and 70% bonds

Sample Series 7 Suitability Question 4

An investor with a high risk tolerance shorts 100 shares of XYZ and would like to generate income through an option. Which would you recommend?

A) Buy a put on XYZ

B) Buy a Call on XYZ

C) Sell a put on XYZ

D) Sell a call on XYZ

Sample Series 7 Suitability Question 5

Your 62 year old customer has contributed $150,000 to a non qualified variable annuity. Today, the account is valued at $250,000. During the accumulation period, the customer decides to withdraw $25,000 to buy a car. Your customer asks you about how the withdrawal will be taxed. What should you tell the customer?

A) LIFO
B) Any method that is fair
C) Contributions first and then earnings
D) FIFO

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