With more math on the Series 7 exam than the SIE test, anyone new to the finance industry preparing for this test may worry about getting the numbers right. The good news is that the math on the Series 7 is very easy. The bad news is that it’s easy because the test is looking to see if you know the correct processes involved in financial transactions, and this is often a harder skill to cultivate than mathematical prowess.
A lot of questions on the Series 7 will ask about the values and changes to values of certain things, and the formulas you’ll need to memorize are pretty minimal. Still, you’ll need to know them and, most importantly, when to use them. But what exactly will you need to know?
Things like calculating equity values post-dividend and post-split should be second nature to you now, and while you may get tested on these things if you’re lucky, what’s more important is the more complicated calculations. If you can do split calculations easily, drill on asymmetrical or uneven splits (3 for 2 instead of 2:1 splits, for instance) and make sure you understand both dollar and stock dividend calculations.
But these calcs don’t apply just to common stocks; you’ll need to remember how these apply to the value of preferreds and bonds and the difference between straight and cumulative payouts for preferreds and how they affect the calculations. You’ll need to know the difference between rights (short-term) and warrants (long-term) and how to calculate changes in their values.
Debt makes a bigger appearance on the Series 7 than the SIE, so you will need to be completely familiar with the bond ladder (one mnemonic tip: starting with the price, the yields kind of appear in the opposite of alphabetical order going by the last letter: C, CY, YTM, YTC). Remember how to calculate those different yields as well as conversion ratios (for convertibles). Accretion and amortization are also tested on the Series 7.
With funds, remember that POP is NAV and service charge, and with accounts there’s a lot more here than on the SIE. Margin rules aren’t enough; remember LMV – Dr = EV and Cr – SMV = EV as well as Reg T (50%) and maintenance margin (25% for long, 30% for short) and how to calculate margin calls accordingly. You’ll need to know how to calculate an SMV balance as well.
Then, of course, there are options, which we have already covered on in a previous article, but remember that the Series 7 exam covers straddles and spreads and you will need to understand these very well to pass the exam; sometimes, the test has a lot of options questions on it, so you will need to be prepared to tackle those alongside everything else you have studied.
The SIE is a pretty easy exam, but the depth of the Series 7 means it is much more difficult. It requires a lot of study but, before the exam, a lot of practice. Practicing the math of the Series 7 exam is really about memorizing the formulas and remembering how to put them to use; unfortunately, one needs to go much further and be sure that that practice also drills in a deep understanding of the formulas, because the test may have confusing or surprising wording that challenges your understanding of the questions. Fortunately, however, study and practice can bring the confidence that makes those challenges a piece of cake.