The Seven Series Mystery

Worried you’re not going to pass the Seven Series exam? Simple answer: You won’t. IF you listen to advice from people who took it ten years ago. Chances are, the advice you’ve heard is to take a lot of questions, and not read the book. You’re welcome to do this if failure is your goal.

Many of the people giving you advice took their exam in the early 2000’s, if not the 90s. Things have changed, and you can’t expect everything to be the same as it was back then. FINRA used to go by the name NASD, and vendors helped to write exam questions. This is no longer the case, and your Series 7 exam will be nothing like your Dad’s.

Forget simple definitions and math problems. Post-2011, the number of options dropped from between 40 and 55 to the twenties. The test now covers more suitability and situation questions than ever. In terms of the notorious margin questions, there’s no need to over-stress, seeing as you will get 10 questions. A mere 3 of these (if any) will involve you needing to perform calculations.

The Series 7 is not an IQ test. It’s a work test. If you do want to pass, don’t focus on jamming in too much information- focus on concepts. It’s not about remembering everything like a parrot. It’s about understanding everything! The exam is about understanding various concepts and applying them together correctly to figure out the right answer.

Let’s look at a sample question related to dividends that you may encounter on the exam:

An investor buys 200 shares of XYZ common stock at $64.50 per share. The stock has a quarterly dividend of $1.50. If the common stock is currently trading at $82.50 per share, which of the following equals the current annual dividend yield?

−             8.42%

−             7.27%

−             7.45%

−             8.14%

What information do you need to know to answer this question?

  1. Well, first, you need to know the formula for current annual dividend yield, which is:

(Current Annual Dividend)/ (Current Market Value of an Investor’s holdings of Stock)

From there you will need to figure out how to use the information in the question to obtain numbers to plug into the formula.

  1. So next you may try to figure out the number of Current Annual Dividend. You’re given the quarterly dividend so to get the annual dividend you multiply the given quarterly figure by four (since there are four quarters in a year) … ($1.50 x 4 = $6 annual dividend)

But this $6 annual dividend is per share so current annual dividend that investor receives is (200 x $6 = $1,200)

  1. Then to figure the market value you need to know to multiply the shares of stock by the stock price (200 x $82.50 = $16,500)
  2. Now you can plug in the numbers to the Current Annual Yield Formula:

($1,200/$16,500 = 7.27%)

You can see the question doesn’t involve anything exceptionally complicated but does require several steps and understanding of the concepts surrounding dividends.

So, remember: Learn to understand and make sense of what you are learning, as opposed to trying to jam everything in. You don’t need to memorize the FINRA prep material, but you need it stored in your subconscious for safe-keeping. Trust us – you’ll thank us later.

Most importantly, don’t fret about getting questions wrong. If you follow this advice during your Series 7 exam prep, you’ll be fine. Start studying early enough, and you’ll walk away with flying colors. Don’t forget to register for our online course to make sure failure is NOT an option!

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