What Makes The Series 79 Exam So Hard ? 

The reason the series 79 is so hard is because candidates must master a large number of analytical concepts in order to pass the series 79 exam. Not only are candidates required to master these concepts, they must also memorize a substantial number of mathematical calculations and formulas to succeed on exam day. ( See our article on the top math formulas for the series 79 exam . )  Finally, once the math calculations have been committed to memory, choosing the correct formula for the question is the final piece of the puzzle. This is the bad news for people who do not like math and have a hard time memorizing calculations. The good news is that the series 79 has a large number of questions dealing with investment banking concepts that do not require math. 

Why The Series 79 Exam is So Hard?

Students tend to get lost in the questions and often use the wrong formula or use the wrong data when performing calculations. This leads to wrong answers and causes difficulty for students on exam day.

To illustrate why the series 79 exam is so hard, we have taken several questions from our series 79 test bank and presentent them here for your review.  These questions will require you to apply the mathematical skills you need to master and will give you a feel for how challenging the exm can be.  Taking the time to work through these sample questions will help you understand the style of questions that will be presented on the series 79 exam. Read the explanations carefully to ensure that you understand how to arrive at the correct answer. 

Series 79 Example Question #1

As an investment banker you are provided with the following information on  GFT:

EPS	$6.10
Dividend payout ratio	35%
Return on equity	9%
Cost of equity	7%
Debt to equity ratio	30%

Given the information above you would calculate the intrinsic value of GFT to be closest to:

A) $139

B) $185

C) $196

D) $226

Question Rationale

The first step in answering this question is to calculate the growth rate. This is done by multiplying the earnings retention rate by the return on equity. The earnings retention rate is the complement of the dividend payout ratio. In this case the growth rate = 65% X 9% = 5.85%. Now we calculate the current dividend based on the EPS and dividend payout ratio. $6.10 X 35% =$2.135. Next calculate the future dividend by multiplying the dividend by the growth rate. Here we have $2.135 X 1.0585 = $2.26 (rounded). Lastly, we divide the future dividend by the cost of equity minus the growth rate. $2.26/ ( 7%-5.85%) = $2.26 / 1.15% =$196.52.

Series 79 Example Question #2

A large manufacturing company has just purchased a piece of production equipment for $40 million dollars. The company estimates that the equipment will have a useful life of 20 years and a residual value of $5 million. The company has taken a depreciation charge in the first 2 years of $2 million each year. The company is in the 30% tax bracket. At the end of the second year, which two of the following are correct?

I. The company’s accounting income will exceed its taxable income
II. The company’s taxable income will exceed its accounting income
III. The company will have a deferred tax liability of $150,000
IV. The company will have a deferred tax asset of $150,000

A) II and III

B) I and IV

C) I and III

D) II and IV

Question Rationale

The company will have a deferred tax liability of $150,000 based on the depreciation applied to the equipment. The asset has a residual value of $5 million. The amount of depreciation to be taken each year is based on the difference between the purchase price and the residual amount. In this case $40 million – $5 million = $35 million. $35 million / 20 years = $1.75 million per year. The additional depreciation of $250,000 per year or $500,000 for the first 2 years would create a deferred tax liability of $150,000 based on the company’s tax rate of 30% As a result of the excess depreciation, the company’s taxable income will exceed its accounting income . 

Series 79 Example Question #3

Pursuant to SEC Rule 14C-2 issuers must notify shareholders of their right to vote at the issuer’s annual meeting. Which of the following statements is correct?

A) If the issuer elects to notify its shareholders electronically it must give shareholders 20 days notice, or 30 days if notified by mail 

B) If the issuer elects to notify its shareholders electronically it must give shareholders 40 days notice, or 20 days if notified by mail 

C) If the issuer elects to notify its shareholders electronically it must give shareholders 20 days notice, or 40 days if notified by mail

D) If the issuer elects to notify its shareholders electronically it must give shareholders 30 days notice, or 20 days if notified by mail

Question Rationale

Issuers must notify shareholders of their right to vote prior to the annual meeting. If the issuer elects to notify its shareholders electronically it must give shareholders 20 days notice, or 30 days if notified by mail

We have presented 3 typical questions test takers are likely to encounter on the series 79 exam. Two of these questions required math calculations to be performed in order to answer the question correctly. The third question only required the knowledge of the rule and for the test taker to be able to select the correct answer from the 4 choices. The answer choices are all very similar and this is what can make these questions challenging on the series 79 exam. Committing the rules, regulations and concepts to memory will help you feel confident taking the test on exam day. 

We hope that this article will help you feel more confident when preparing for the series 79 exam. Check out our best in class series 79 video training lectures which follow our books chapter by chapter and topic by topic to ensure you have mastered even the most challenging questions. 

Good Luck on your Exam, 

The Securities Institute of America, Inc.