Series 7 Sample Question: Taxation

Series 7 exam candidates scour the web for Series 7 exam sample questions. Let's take a look at the kind of question you might see on your Series 7 exam: Which of the following statements accurately explains an investor's "marginal tax rate"? A. It is the rate applied to qualified dividends and long-term capital gains B. It is the rate of tax paid on the last dollar of income earned C. It is the rate applied to all of the investor's ordinary income for the year D. It is the average rate of taxes paid, calculated by dividing taxes paid by taxable income EXPLANATION: as always, take whatever you are given in the question and use it to eliminate answer choices. Choice A is trying to confuse you--investors might pay 15% or 20% (or even 0%) on qualified dividends and long-term capital gains, but they don't pay their marginal rate. A is eliminated. B looks good, but let's make sure. Choice C doesn't have it right, either--if somebody makes enough money to be pushed into the 33% bracket, that rate only applies to some of his income. C is eliminated. And, Choice D is defining the investor's effective tax rate. Choice B is the answer. An investor who tops out in the 33% bracket also pays 10, 15, 25, and 28% on various swaths of his income. He pays 33% on the "last dollar of income earned."

What Does the Series 7 Mean by Suitability?

When the Series 7 Exam asks 70 questions on "suitability," what does that actually mean? Well, as you would assume, it covers recommendations to customers that you will make through short-story questions. But, the suitability questions also expect you to know about economic factors, industry news sources, and product features/benefits/risks/costs. This is from the Series 7 Exam outline:

TASKS:

T4.1 Obtains information regarding current domestic and global market events, economic/financial news, industry sectors, and the status of markets and securities from various appropriate sources to assess how this information may impact the markets, issuers and customers’ accounts
T4.2 Communicates relevant market, investment and research data to customers
T4.3 Makes suitable investment recommendations
T4.4 Provides appropriate disclosures concerning products, risks, services, costs and fees
T4.5 Provides customers with information on investment strategies and explains how the risks and rewards of a particular investment or strategy relate to the customer’s financial needs and investment objectives

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