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Series 7 — Suitability, Margin, Munis & Taxes flashcards

10 of 65 cards free to study here · 8 topics · the whole deck is built into Willys

Customer suitability, Reg T and maintenance margin math, SMA and short accounts, municipal underwriting and taxation, capital gains and wash sales, retirement accounts, DPPs and fund breakpoints.

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Learn deck · part of FINRA SIE and Series 7 · written against: FINRA content outlines; T+1 settlement (May 2024); SECURE 2.0 RMD ages. Updated 2026-10-10.

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  1. What are the three main suitability obligations under FINRA's suitability rule?
    Reasonable-basis (the recommendation suits at least some investors), customer-specific (it fits this customer's profile), and quantitative (the overall frequency of trading is not excessive).
    Suitability
  2. Each trade a rep recommends is individually reasonable, but together they turn the account over many times a year. Which suitability obligation is at issue?
    Quantitative suitability — a series of trades can be unsuitable in total even when each one is suitable on its own.
    Suitability
  3. What is the Regulation T initial margin requirement for buying marginable stock?
    50% of the purchase price, set by the Federal Reserve Board.
    Margin
  4. A customer opens a new margin account and buys 3,000 dollars of stock. How much must she deposit?
    2,000 dollars — the FINRA minimum equity for a margin account, which here exceeds the 50% Reg T amount of 1,500.

    Watch out: if the purchase were under 2,000 dollars, she would deposit the full price.
    Margin
  5. How is the underwriter chosen in a competitive municipal underwriting, and how is the winner determined?
    The issuer publishes a notice of sale and syndicates submit sealed bids; the award goes to the bid with the lowest interest cost to the issuer (net interest cost or true interest cost). This method is typical for GO bonds.
    Municipal Underwriting
  6. A customer in the 30% tax bracket is offered a municipal bond yielding 3.5%. What is its tax-equivalent yield?
    5% — a taxable bond would need to yield 5% to match it after tax.

    Formula: TEY=3.5%1−0.30=5%TEY = \frac{3.5\%}{1 - 0.30} = 5\%
    Municipal Taxation
  7. How long must a security be held for a gain to qualify as long-term?
    More than one year. A holding period of one year or less produces a short-term gain, taxed as ordinary income.
    Cost Basis and Capital Gains
  8. How are contributions and withdrawals treated in a traditional IRA compared with a Roth IRA?
    Traditional: contributions may be deductible and withdrawals are taxed as ordinary income, except any return of nondeductible contributions. Roth: contributions are after-tax and qualified withdrawals are tax-free.
    Retirement Accounts
  9. Why is a direct participation program called a flow-through investment?
    Because the program pays no entity-level tax: its income, gains, losses and deductions pass directly to investors, who report them on their own returns.
    Direct Participation Programs
  10. What is a breakpoint in a mutual fund?
    A dollar level of investment at which the sales charge on Class A shares is reduced; larger purchases pay a lower percentage load.
    Mutual Fund Sales Charges

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About these cards

Review status: Second-reader reviewed, with corrections applied.

Checked against:

  • Checked against the FINRA Series 7 content outline (© 2025 FINRA; topic list only; no text copied).
  • Checked against Regulation T (12 CFR Part 220), FINRA Rules 2111 and 4210, and MSRB Rules G-11, G-32 and G-37 (reference only).
  • Checked against IRS Publications 550 and 590-A/590-B (U.S. government, public domain) for capital gains, wash sales, qualified dividends, IRAs, rollovers and RMDs.

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