FINRA Series 7 — All Questions

A customer wants to deliver restricted stock to cover a short call position. What does FINRA's options rule require?

• a.The member may accept the shares only if Securities Act requirements for the shares have been met when accepted and when delivered✓
• b.The member may accept them if the customer certifies the stock was bought at least a year ago
• c.Restricted stock may always be used to cover a short call
• d.The member may accept them whenever the customer is not an officer of the issuer

The rule bars a member from accepting stock that can be sold only after registration or under an SEC exemption unless the applicable Securities Act provisions have been complied with, both on acceptance and on later delivery. A customer's certification of age or insider status does not meet that test.FINRA Rule 2360(b)(14)

A customer with a new margin account buys $40,000 of a margin-eligible stock. Under Regulation T, what is the minimum the customer must deposit, assuming the firm requires no more than the regulatory minimum?

• a.$10,000
• b.$20,000✓
• c.$30,000
• d.$12,000

Regulation T sets the initial requirement for a margin equity security at 50 percent of current market value, so half the purchase is paid in and the firm lends the rest. The 25 percent figure is the FINRA maintenance level for a long position, which applies after the purchase and is not the initial deposit.12 CFR 220.12(a)

A customer sells short 300 shares of a margin stock at $20. Regulation T requires 150 percent of the market value in the account. Counting the sale proceeds toward that total, how much must the customer deposit?

• a.$1,500
• b.$1,800
• c.$3,000✓
• d.$9,000

The Regulation T requirement is 150 percent of the $6,000 short sale, or $9,000. The sale proceeds of $6,000 are credited to the account and count toward it, so the customer deposits $3,000, which equals 50 percent of the short market value. Depositing the full $9,000 forgets the proceeds, and the 30 and 25 percent figures are FINRA maintenance numbers, not the initial requirement.12 CFR 220.12(c)(1); 220.2 (equity)

A customer bought stock on margin and now owes a debit balance of $40,000. Assuming the 25 percent FINRA maintenance minimum and no house requirement, the account first falls below maintenance when the long market value drops below approximately:

• a.$53,333✓
• b.$61,538
• c.$50,000
• d.$80,000

Equity is market value minus the debit, and it must stay at least 25 percent of market value. Setting MV minus $40,000 equal to 0.25 times MV gives MV = $40,000 divided by 0.75, about $53,333. Multiplying the debit by 1.25 is a common slip that treats the 25 percent as a markup on the loan instead of a share of the market value. Dividing by 0.50 uses the initial requirement rather than the maintenance one.FINRA Rule 4210(c)(1)

A margin account holds long stock worth $60,000 with a debit balance of $40,000. Applying the 25 percent maintenance minimum, how much equity is in the account above the maintenance requirement?

• a.$15,000
• b.$20,000
• c.$10,000
• d.$5,000✓

Equity is $60,000 less $40,000, or $20,000. The maintenance minimum is 25 percent of $60,000, or $15,000, so the cushion is $5,000. The total equity ignores the requirement, and the second figure is the shortfall against the 50 percent initial level, which restricts the account but is not the maintenance cushion.FINRA Rule 4210(c)(1); 12 CFR 220.2 (equity)

A margin account holds long stock with a market value of $30,000 and a debit balance of $18,000. The 25 percent maintenance minimum is $7,500 and the Regulation T 50 percent initial figure is $15,000. What is the status of the account?

• a.Equity of $12,000 is below maintenance, so a maintenance call must be issued
• b.Equity of $12,000 exceeds maintenance, so there is no maintenance call, but the account is below the 50 percent initial level and is restricted✓
• c.The account is in violation of Regulation T and must be liquidated on the next business day
• d.Equity of $12,000 exceeds the initial requirement, so the customer may withdraw cash freely

Equity is $30,000 minus $18,000, or $12,000. That is above the $7,500 maintenance minimum, so no maintenance call arises, but it is below $15,000, so the account is restricted: new purchases need the initial margin and the customer cannot withdraw. Falling below the initial level after prices move is not a Regulation T violation and does not force liquidation.12 CFR 220.12(a); FINRA Rule 4210(c)(1)

A customer is short 200 shares of a stock trading at $50. What is the FINRA minimum maintenance margin on the position?

• a.$5,000
• b.$3,000✓
• c.$15,000
• d.$2,500

For a short stock priced at $5.00 or more the maintenance minimum is the greater of $5 per share or 30 percent of market value. Here 30 percent of $10,000 is $3,000, which is more than $5 times 200 shares, or $1,000. The 25 percent level applies to long positions, and the 50 and 150 percent figures are Regulation T initial numbers.FINRA Rule 4210(c)(3)

A customer is short 400 shares of a stock now selling at $4.00 per share. What is the FINRA minimum maintenance margin on the position?

• a.$480
• b.$2,000
• c.$400
• d.$1,600✓

For a stock short and selling below $5.00 the minimum is the greater of $2.50 per share or 100 percent of market value. Market value is $1,600 and $2.50 times 400 shares is $1,000, so 100 percent governs. The 30 percent and $5 per share tests are for stock priced at $5.00 or higher, and 25 percent is the long-position test.FINRA Rule 4210(c)(2)

A customer sold short 100 shares at $40 and deposited $2,000 of initial margin, so the account credit is $6,000. Using the 30 percent maintenance minimum for stock priced above $5, the account first falls below maintenance when the stock price rises above approximately:

• a.$48.00
• b.$40.00
• c.$52.00
• d.$46.15✓

Equity on a short position is the credit less the current market value, and it must be at least 30 percent of that market value. Setting $6,000 minus MV equal to 0.30 times MV gives MV = $6,000 divided by 1.30, or $4,615.38 for 100 shares, about $46.15 per share. Simply adding 30 percent to the sale price ignores the deposit, while the divisors 1.25 and 1.5 are the long maintenance and short initial percentages.FINRA Rule 4210(c)(3)

A customer opens a margin account and buys $3,000 of a margin-eligible stock. Regulation T would require 50 percent. If the firm applies only the regulatory minimums, what is the least the customer must deposit?

• a.$3,000
• b.$1,000
• c.$1,500
• d.$2,000✓

FINRA's initial margin rule requires equity of at least $2,000 for new commitments, though cash need not exceed the cost of the securities bought. Fifty percent of $3,000 is only $1,500, which falls below the minimum, so the $2,000 floor governs. The full $3,000 is more than the rule demands, since cash is limited to the lesser of cost or the floor.FINRA Rule 4210(b)(4)

A customer buys $200,000 current market value of a U.S. Treasury note with two years to maturity in a margin account. What is the FINRA minimum margin on the position?

• a.$6,000
• b.$2,000
• c.$14,000
• d.$4,000✓

For U.S. Government obligations, margin depends on time to maturity: 1 percent under one year, 2 percent from one to under three years, 3 percent from three to under five, 4 percent from five to under ten, 5 percent from ten to under twenty, and 6 percent at twenty years or more. A two-year note falls in the 2 percent band, or $4,000. The 1 and 3 percent bands are the neighbours on either side, and 7 percent is the requirement for other exempted securities such as municipals.FINRA Rule 4210(e)(2)(A)

A customer holds $150,000 current market value of U.S. Treasury bonds with seven years remaining to maturity. What is the FINRA minimum margin on the position?

• a.$6,000✓
• b.$10,500
• c.$4,500
• d.$7,500

A Treasury obligation with five years but less than ten to maturity carries a 4 percent requirement, which is $6,000 on $150,000. Three percent is the band for three to under five years, 5 percent is for ten to under twenty years, and 7 percent applies to other exempted securities such as municipal bonds.FINRA Rule 4210(e)(2)(A)

A customer buys $50,000 current market value of an investment-grade municipal bond in a margin account. What is the FINRA minimum margin for exempted securities other than U.S. Government obligations?

• a.$3,500✓
• b.$12,500
• c.$5,000
• d.$2,500

Municipal bonds are exempted securities, and for exempted securities other than U.S. Government obligations the rule requires 7 percent of current market value, or $3,500. Ten percent is the requirement for non-exempt investment-grade debt such as corporate bonds, and 25 percent is the long stock maintenance level.FINRA Rule 4210(e)(2)(B)

A customer buys $80,000 current market value of an investment-grade corporate bond in a margin account. What is the FINRA minimum margin on the position?

• a.$8,000✓
• b.$16,000
• c.$20,000
• d.$5,600

A non-equity investment-grade debt security that is not an exempted security requires 10 percent of current market value, or $8,000 here. Seven percent is the municipal and agency exempted-security figure, 25 percent is long stock maintenance, and 20 percent applies to lower-rated listed non-equity securities.FINRA Rule 4210(e)(2)(C)(i)

A customer is short corporate bonds with a principal amount of $100,000 and a current market value of $90,000. What is the FINRA minimum maintenance margin on the position?

• a.$22,500
• b.$9,000
• c.$5,000
• d.$27,000✓

For a short bond the maintenance requirement is the greater of 5 percent of principal or 30 percent of market value. Thirty percent of $90,000 is $27,000, which exceeds 5 percent of principal, or $5,000. Using the 5 percent number alone ignores the market value test, and 25 percent is the long stock figure.FINRA Rule 4210(c)(4)

A customer buys $10,000 of an equity security that is not margin eligible. What portion of the market value must be paid for with the customer's own money?

• a.All of it, 100 percent✓
• b.30 percent, the short-sale maintenance rate
• c.50 percent, the Regulation T initial rate
• d.25 percent, the FINRA maintenance rate

A nonmargin, nonexempted equity security cannot support a loan, so Regulation T requires 100 percent of its current market value and FINRA carries a 100 percent maintenance requirement for non-margin-eligible equities held long. The percentages in the other choices only apply to margin-eligible stock.12 CFR 220.12(e); FINRA Rule 4210(c)(6)

A customer buys 2 listed calls with six months to expiration at a premium of $6.00. How much must the customer pay with their own funds in a margin account?

• a.$900
• b.$1,200✓
• c.$300
• d.$600

A listed option carried long that expires in nine months or less requires 100 percent of its purchase price, so the margin account gives no leverage on it. That is $6.00 x 100 x 2, or $1,200. Fifty percent is the stock rule, and 75 percent applies only to listed options with more than nine months left.FINRA Rule 4210(f)(2)(D)

A customer holds a listed long-dated call (LEAPS) with 18 months to expiration and a current market value of $8,000. What margin must be maintained on the long option?

• a.$4,000
• b.$2,000
• c.$8,000
• d.$6,000✓

A listed put or call carried long with more than nine months to expiration needs margin of at least 75 percent of its current market value, so the broker can lend against the other 25 percent. That is $6,000. The full value is what applies when nine months or less remain, and 50 and 25 percent are the stock initial and maintenance rates.FINRA Rule 4210(f)(2)(D)

A customer writes one uncovered listed call on a stock trading at $48. The call has a $50 strike and the premium is $2. What is the minimum margin under FINRA's formula for a short equity option, counting the premium received as the first component?

• a.$680
• b.$1,160
• c.$960✓
• d.$760

For an uncovered listed stock call the requirement is 100 percent of the option's market value ($200) plus 20 percent of the stock value ($960), reduced by the out-of-the-money amount ($50 strike less $48 stock times 100, or $200). That gives $960. The floor of the option value plus 10 percent of the stock value is only $680, so the formula result governs. Skipping the out-of-the-money reduction gives $1,160, and omitting the premium component or using only the 10 percent floor produces a different figure that does not follow the formula.FINRA Rule 4210(f)(2)(E)(i)

A customer writes one uncovered listed call on a stock trading at $48. The call has a $40 strike and the premium is $9. What is the minimum margin under FINRA's formula for a short equity option?

• a.$960
• b.$1,860✓
• c.$1,060
• d.$1,380

The call is in the money, so no out-of-the-money reduction applies. The requirement is the option's market value ($900) plus 20 percent of the stock value ($960), which is $1,860. The 10 percent floor ($900 + $480) is lower, so it does not govern, and subtracting the in-the-money amount from the requirement is not permitted.FINRA Rule 4210(f)(2)(E)(i)

A customer writes one uncovered listed put on a stock trading at $52. The put has a $50 strike and the premium is $1.50. What is the minimum margin under FINRA's formula for a short equity option?

• a.$1,190
• b.$840
• c.$650
• d.$990✓

The requirement is the put's market value ($150) plus 20 percent of the stock value ($1,040), reduced by the out-of-the-money amount, which is the stock price over the strike times 100, or $200. That gives $990. For a short put the floor is the option value plus 10 percent of the aggregate exercise price, $650, which is lower. Skipping the reduction gives $1,190, and the floor alone is too low.FINRA Rule 4210(f)(2)(E)(i)

A customer sells one listed XYZ 50 call for $5 and buys one XYZ 55 call of the same expiration and underlying for $2 (a credit call spread). What is the maximum potential loss on which the margin is based, before applying the net credit?

• a.$5,500, the aggregate exercise price of the long call
• b.$500, the difference between the strikes✓
• c.$300, the net premium received on the two positions
• d.$200, the cost of the long call

For a spread the margin on the short option is the lesser of the naked requirement or the maximum potential loss, found by netting intrinsic values at every strike in the spread. Between $50 and $55 the short call can lose $5 per share more than the long gains, so the loss is capped at $500, the difference in strikes. The net credit of $300 is cash received and reduces what must be deposited, but it is not the loss figure.FINRA Rule 4210(f)(2)(H)(i)

A customer sells one listed XYZ 50 call for $5 and buys one XYZ 55 call for $2 on the same underlying and with the same expiration. The long option is paid for in full and the short option's proceeds may be applied to the cost of the long and the margin. How much new cash must the customer deposit?

• a.$200✓
• b.$300
• c.$700
• d.$500

The long call costs $200 and the short call is margined at the $500 maximum potential loss, a total of $700. The $500 of premium received for the short call is applied against it, so $200 remains to be deposited. That is the difference in strikes of $500 less the $300 net credit. The full $500 forgets the credit, $300 confuses the credit with the deposit, and $700 ignores the proceeds.FINRA Rule 4210(f)(2)(H)(i)

A customer sells one listed XYZ 50 call for $3 and one XYZ 50 put for $2 on the same stock, currently trading at $50. Use the formula of 100 percent of option value plus 20 percent of the stock value, with no out-of-the-money reduction since both are at the money. What is the margin required on this short straddle?

• a.$1,500✓
• b.$2,500
• c.$2,000
• d.$1,300

For a short straddle on the same underlying the requirement is the margin on the call or the put, whichever is greater, plus the market value of the other option. The call side is $300 + $1,000 = $1,300, the put side is $200 + $1,000 = $1,200, so the call governs and the put's $200 value is added, for $1,500. Adding the two full requirements double counts the stock, and using only the greater side leaves out the other option's market value.FINRA Rule 4210(f)(2)(G)

For 2025, what is the IRA contribution limit for an individual age 50 or older who has enough taxable compensation?

• a.$23,500
• b.$7,000
• c.$9,000
• d.$8,000✓

For 2025 the IRA contribution limit is $7,000, or $8,000 for individuals age 50 or older, subject to the compensation requirement. The $7,000 figure is the base limit without the catch-up, and the larger amounts belong to employer plans, not IRAs.IRS Pub. 590-A (2025), Contributions to IRAs

Which of the following is a requirement for making a traditional IRA contribution for a given year?

• a.The individual must be under age 59½
• b.The individual or the spouse must have taxable compensation for the year✓
• c.The individual must be covered by a retirement plan offered by the individual's employer
• d.The individual must have no other retirement account

A traditional IRA contribution requires the individual (or, on a joint return, the spouse) to have received taxable compensation during the year. Employer plan coverage may limit the deduction but not the contribution, and there is no age limit of 59½ or limit on other accounts.IRS Pub. 590-A (2025), Contributions to IRAs

An investor contributes more than the limit to an IRA for 2025 and does not withdraw the excess by the deadline. What tax applies to the excess?

• a.No tax, if the excess is under $1,000
• b.A 10 percent early distribution tax on the excess contribution, in addition to ordinary income tax
• c.A 25 percent excise tax on the excess
• d.A 6 percent excise tax on the excess contribution✓

An excess contribution is subject to a 6 percent excise tax, which is avoided if the excess is withdrawn by the due date of the return including extensions. The 10 percent additional tax applies to early distributions and the 25 percent tax to missed required distributions.IRS Pub. 590-A (2025), Contributions to IRAs

An investor receives a distribution from a traditional IRA and wants to roll it over to another IRA tax free. Within how many days of receiving it must it be rolled over, absent a waiver?

• a.90 days
• b.60 days✓
• c.30 days
• d.One year

An amount distributed from an IRA is tax free if it is put back in an eligible plan within 60 days of receipt. The one-year period in the rollover rules governs how often a rollover may be done, not how long one has to complete it.IRS Pub. 590-A (2025), Contributions to IRAs

An investor takes a distribution from one traditional IRA and rolls it over to another IRA within 60 days. Within the following 12 months, may the investor make a second tax-free rollover from the same IRA?

• a.Yes, but only if the amount is under $10,000
• b.Yes, if the rollover goes to a Roth IRA
• c.No, because only one tax-free rollover of a distribution from the same IRA is allowed within a 1-year period✓
• d.Yes, unlimited rollovers are allowed each year

If an individual makes a tax-free rollover of part of a traditional IRA distribution, no later distribution from that IRA can be rolled over tax free within a 1-year period, which begins on the date the distribution was received. The dollar amount does not change the limit.IRS Pub. 590-A (2025), Contributions to IRAs

Absent an exception, what additional tax applies to a taxable withdrawal from a traditional IRA made before the owner reaches age 59½?

• a.A 10 percent additional tax on the early distribution✓
• b.A 6 percent excise tax
• c.A 25 percent additional tax in all cases
• d.No additional tax, since only ordinary income tax applies

A 10 percent additional tax generally applies to withdrawals of IRA assets before age 59½ unless an exception applies. The 6 percent tax is for excess contributions, and the 25 percent figure applies to a missed required minimum distribution, or to certain SIMPLE IRA distributions in the first two years of participation.IRS Pub. 590-B (2025), Distributions from IRAs

An IRA owner fails to take the required minimum distribution. What is the general excise tax on the amount not distributed?

• a.25 percent, which can be reduced to 10 percent if corrected in the correction window✓
• b.50 percent, which cannot be reduced
• c.10 percent, with no way to reduce it
• d.6 percent per year until corrected

A 25 percent excise tax applies to the amount not distributed as required, and a reduced 10 percent rate can apply if the shortfall is corrected during the correction window. The 6 percent figure is the excise tax on excess contributions.IRS Pub. 590-B (2025), Distributions from IRAs

An investor opened and first funded a Roth IRA four years ago and is now age 61. What makes a withdrawal of earnings a qualified distribution?

• a.It is taxable only if the investor is under age 65
• b.It is not qualified, because the 5-year period has not yet been met✓
• c.It is qualified, because the investor has held the account more than one year
• d.It is qualified, because the investor is over 59½

A qualified Roth distribution must be made after the 5-year period beginning with the first tax year for which a contribution was made to a Roth IRA set up for the owner, and also meet a second condition such as being on or after age 59½. Four years of ownership does not satisfy the 5-year period, so being over 59½ is not enough.IRS Pub. 590-B (2025), Distributions from IRAs

A Roth IRA owner rolls an amount from one Roth IRA to another Roth IRA. How does this affect the 5-year period for determining qualified distributions?

• a.The 5-year period does not change✓
• b.The 5-year period restarts with the rollover
• c.The 5-year period ends immediately
• d.The 5-year period is shortened to two years

A rollover from one Roth IRA to another does not change the 5-year period, which begins with the first tax year for which a contribution was made to the initial Roth IRA. The period restarting would penalize routine account moves, which the rule does not do.IRS Pub. 590-B (2025), Distributions from IRAs

A SIMPLE IRA participant takes an early distribution within two years of first participating. What additional tax rate applies instead of the usual 10 percent?

• a.15 percent
• b.6 percent
• c.25 percent✓
• d.50 percent

Distributions from a SIMPLE IRA made within 2 years of beginning participation are subject to a 25 percent early distributions tax rather than 10 percent. The 6 percent figure is the excise tax on excess IRA contributions.IRS Pub. 590-A (2025), SIMPLE IRAs