Series 65 Practice Exam Questions
The industry is concerned about the protection of both firm and customer data. Where would it be acceptable to store this information? I. On a cloud-based server II. In paper form III. On computer disks IV. On microfiche
I, II, III, and IV
Washington, Adams, and Jefferson, Inc., (WAJI) is an investment adviser whose principal and only office is in Alexandria, VA. WAJI's sole business is advising institutional investors. Rutherford Buchanan is employed by the firm in the main office and has the responsibility of servicing the firm's bank and insurance company clients. Which of the following statements is correct regarding Rutherford's licensing requirements?
Rutherford must register as an IAR of WAJI with the State of Virginia
Which of the following is the best example of an exaggerated claim that may not be used in investment adviser advertising?
Saying that the firm has $300 million under management when it manages only $50 million
A client of a broker-dealer turns in an order to purchase 10,000 shares of XYZ stock on the NYSE. This would be
a block trade
A manufacturer of soybean oil is concerned that the price of soybeans will increase over the next six months. The best strategy to employ would probably be
a long hedge
A high-risk investment strategy is the short sale of stock. Each of the following is a method of offering some degree of protection except
buying a put on the short stock
One area of paramount importance to state Administrators is seeing that investment advisers make all material disclosures to their advisory clients. An example of a failure to disclose is when the adviser has a financial condition that is reasonably likely to impair the ability of the adviser to meet contractual commitments to those clients. That disclosure would not need to be made in the case where the investment adviser
engages in agency cross transactions
Three years ago, an investor purchased 1,000 shares of stock in the Equity Protective Life Insurance Company (EPLIC). The purchase price was $53 per share. The current market value of EPLIC stock is $79 per share. If the investor is in the 24% federal income tax bracket, it is correct to state that
no tax is owed by the investor
One way for an accredited investor with an aggressive stance to reduce the overall risk in his portfolio is by
purchasing a hedge fund
Under the Uniform Securities Act, the Administrator may deny or revoke the exemption from registration for which of the following? I. A security issued by a nonprofit organization II. Investment contracts of employee benefit plans III. An exempt transaction not involving a federal covered security
I, II, and III
One of the prohibited practices under the Uniform Securities Act is market manipulation. Which of the following are examples of a broker-dealer engaging in that practice? I. Arbitrage II. Churning III. Matched orders IV. Wash trades
III and IV
An agent of a broker-dealer is currently doing business in one state and would like to conduct business in another state. When checking with the firm's compliance department, the agent would be told which of the following?
If the agent is a partner, officer, or director and held that position at the time the broker-dealer was registered in that other state, the individual need not register separately
Senescent Retirement Planning (SRP) is registered as a broker-dealer with the SEC and a number of states. As such, the client relationship summary (Form CRS) must be delivered to each retail investor before or at the earliest of any of these except
entrance into an investment advisory contract with the retail investor
XYZ Securities, Inc., a FINRA member broker-dealer, is registered in all 50 states. XYZ has its principal office in State C and a branch office in State A. If the State U Administrator wishes to examine certain financial records of XYZ's, the Administrator would be able to do all of the following except
examine those records located in State U
An investment adviser representative is examining the financial statements of several corporations in an effort to find a suitable investment for certain clients. While reviewing the income statements, subtracting the cost of goods sold (COGS) from the revenues reveals each company's
gross margin
Broker-dealers are required to furnish clients with a fee disclosure document. All of the following are true statements about that document except
it must be filed with the Administrator of the state in which the broker-dealer's principal office is located
An agent for a well-known broker-dealer has taken it upon herself to look for investment opportunities for her clients. Her research indicates that, in spite of record earnings, the stock of GEMCO, Inc., is poised for a price reversal. Should this analysis prove correct, this would be an example of
market risk
The Uniform Securities Act considers which of the following to be investment advisers subject to registration in the state? I. An adviser with no place of business in the state who advises wealthy customers in the state on a fee basis only II. An adviser with a place of business in the state whose total fee income in the state amounts to $150 III. An adviser with no place of business in a state who provides advice on only fixed annuities IV. An adviser with a place of business in the state who provides advice only to open-end investment management companies registered under the Investment Company Act of 1940
I and II
Transparent Investment Advisers (TIA) is registered in three states and has $55 million in assets under management. TIA maintains custody of customer securities. TIA's chief financial officer reports that the net worth of the firm has suddenly fallen to $28,000. This would require TIA to
obtain a surety bond in the amount of $10,000
A wealthy individual has set up a GRAT. Should she die during the time the trust is active, how are the remaining assets in the trust taxed?
The original value plus any appreciation is taxed as part of the grantor's estate
Which of the following is not considered a derivative?
Unit investment trust
An agent employed at First XYZ Securities produces his own research reports and provides them to a select group of personal clients. The agent has written permission from his employer to engage in this activity, provided the time spent on the project is conducted after working hours. Under the Investment Advisers Act of 1940, if the agent does not charge fees for the research but receives commissions from his employing broker-dealer for trades executed through the firm,
neither the agent nor his employing broker-dealer need register as an investment adviser
One of your clients who is interested in a hedge fund notes that the fund invests in blank-check companies. He seems uncertain what blank-check companies are, so you explain that they are sometimes known as special purpose acquisition companies (SPACs) and are unique in that
they have no business operations but instead raise money for the sole purpose of seeking out a business to engage in
Seven years ago, Sarah Smith was convicted of possession of a controlled substance in a state where that violation is considered a felony. Sarah has just filed an application for registration as an agent with Kapco Securities, a registered broker-dealer in a state where that violation is only considered a misdemeanor. When viewing this agent's application, the Administrator will
treat the crime as a felony
The Investment Advisers Act of 1940 requires that investment advisers make certain disclosures to their customers through the delivery of the adviser's brochure. However, the act grants an exemption if the clients is which of the following? I. A broker-dealer II. An insurance company III. An investment company IV. A person receiving impersonal advice for which the annual fee is less than $500
III and IV
When it comes to issuing a debt security, which of the following features will generally enable the issuing corporation to borrow at the lowest interest rate?
Convertible
Adam has a portfolio of bonds worth approximately $125,000. He is concerned that interest rates will increase in the near term. Which of the following would be the least desirable strategy for Adam?
Sell bonds with a short duration and buy those with a longer duration
One of your clients has called you to discuss an interesting investment opportunity discovered on one of the LinkedIn groups she participates in. Which of the following factors might increase the likelihood that this is a scam? I. A registration statement with the SEC is available on the website of the proposed investment II. The purchase money must be wired to an offshore account III. One of the members of the group is a principal in the company being offered IV. Bonus shares are offered for recruiting friends into the deal
II, III, and IV
The capital asset pricing model (CAPM) is used by many to assess the expected return of a security. If the current risk-free rate is 2%, the current return on the market is 12%, and a particular stock's beta is 0.8 with a correlation coefficient of 0.60, the expected return would be
10.0%
You are viewing three securities to place in a client's portfolio. Security X has an expected return of 15%, security Y has an expected return of 20%, and security Z has an expected return of 10%. If you were to place 40% of the portfolio into security X, 40% into security Y, with the balance going into security Z, the probable return of the portfolio is
16%
FNK Corporation reported earnings of $2.47 per share last year on its stock, currently trading at $9.42 per share. Dividends paid out during the year totalled $0.93 per share. FNK's dividend payout ratio is closest to
38%
A fundamental analyst reviewing the current ratios of four different companies would consider which of the following to be in the most liquid position?
4.2:1
The XYZ Corporation's income statement contains the following information: Total Revenue: $200,000 Cost of goods sold: $60,000 Administrative expenses: $30,000 Depreciation: $10,000 Miscellaneous expenses: $3,000 Taxes paid: $5,000 Based on this information, what is XYZ's gross profit?
$140,000
A bond has a conversion price of $100 and is currently selling at 145. What is the parity price of the common stock?
$145.00 per share
Which of the following is an allowable early withdrawal from a traditional IRA without penalty?
A wealthy individual withdraws $10,000 from his IRA to purchase his first principal residence
MT Securities is a broker-dealer registered in 42 states. MT Securities makes a market in over 100 different stocks and participates in the underwriting of approximately 22 IPOs per year. Which of the following actions would be prohibited under NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents?
Acquiring shares of an IPO as part of the underwriting syndicate and holding a small portion for the firm's investment account, hoping to gain from market appreciation
An agent based in Alabama directs a solicitation to a customer who lives in Connecticut while the customer is temporarily in Indiana. The customer does not accept the offer until he arrives back in Connecticut. According to the Uniform Securities Act, the Administrators of which of the following states have jurisdiction?
Alabama, Connecticut, and Indiana
Which of the following persons is required to register with the SEC as a federal covered adviser?
An adviser who gives advice only to registered investment companies
Under the Investment Advisers Act of 1940, which of the following would not meet the criteria of persons associated with an investment adviser?
An individual whose only function is posting trades to client accounts
Which of the following persons must register as an investment adviser under the Uniform Securities Act?
An investment adviser representative with no place of business in the state who has dealt with seven retail clients during the most recent 12 months
An investment adviser representative has a client for whom investment-grade bonds are a suitable addition to the portfolio. That being the case, bonds with which of the following Moody's ratings would not be considered?
Ba
Why are country funds organized as closed-end funds?
Because it is often difficult to liquidate the foreign securities to get their value into the United States
Although generally prohibited, there are conditions under which a state-registered investment adviser is permitted to charge performance-based fees. Which of the following meets the necessary criteria?
Charging a performance-based fee to an elderly client whose net worth, excluding the equity in the principal residence, is $2.3 million, with only $150,000 under the adviser's management
Which of the following qualifies under the Section 28(e) safe harbor provisions for soft dollar compensation?
Clearance and settlement services provided by the broker-dealer
In comparing the change in the GDP from one year to another, to arrive at an accurate figure, each year's GDP should be converted to which of the following?
Constant dollars
Calvin has the following securities in his portfolio: ABC common stock, XYZ common stock, PQR mutual fund (domestic small cap), DEZ mutual fund (foreign small cap), 30-year Treasury bond, and 5-year Treasury note. Which of the following risks should not concern Calvin?
Default risk
NASAA has a Model Rule dealing with investment advisers brochures. If an advisory client wanted information about each individual providing investment advice and having direct contact with clients in the state, that information would be found in
Form ADV Part 2B
A purchaser of which of the following investments has an obligation?
Forwards
An investment adviser that has custody of customer funds and securities discovers that its net worth has dropped below the required minimum under the rules of the state Administrator. Under NASAA rules, the adviser must do which of the following? I. Notify the Administrator by the close of business on the day after discovery II. File a report of its financial condition with the Administrator no later than the close of business on the day after notification III. Cease doing business
I and II
When does the Investment Advisers Act of 1940 not require delivery of a brochure containing information about the adviser's background and business practices? I. When the service provided is an individual supervisory service II. When the client is an investment company III. When the contract is for an impersonal advisory service requiring payment of less than $500 IV. When the client is an individual with a net worth of more than $1 million
II and III
Which of the following types of investments requires the longest commitment and has the least short-term liquidity?
Private equity fund
The sole proprietor of an insurance business that exclusively provides advice on fixed-income annuity contracts
need not register under any securities laws
A speculator, believing that a drought in the Midwest will lead to a weak corn crop, would probably
take a long position in corn futures
A broker-dealer registered in multiple states must meet the record retention requirements of
the SEC
A company has paid a dividend every quarter for the past 20 years. If the stock's price has fallen dramatically over the past quarter, but the dividend has remained the same, it may be concluded that
the current dividend yield has increased
Ana is a bond analyst who notices a wider credit spread between Treasury bonds and AAA corporate debt. From this, she would be most likely to infer
the economy is weakening
Decoction Medical Supplies (DMS) has issued $100 million of $50 par 6% preferred stock convertible at $10. The stock is callable in eight years at $50.50. The major beneficiary of a call feature is generally agreed to be
the issuer
It is correct to state that on the day they are issued, warrants have
time value but no intrinsic value
Under the Uniform Securities Act, the term broker-dealer would include
a person with no office in the state who directs offers to no more than five individual residents of the state in any 12-month period
The Investment Advisers Act of 1940 provides for an exemption from registration to investment advisers whose clients are residents of the state in which the adviser has its principal office and only place of business and who do not give advice dealing with securities listed on any national exchange (e.g., New York Stock Exchange). This exemption is denied to any investment adviser meeting all of the requirements but having as a client
a private fund
An investor is looking at purchasing $10,000 face of bonds. One choice is U.S. Treasury bonds priced at 104.24, and the other choice is AAA-rated corporate bonds priced at 103 3/8. How much more will the Treasuries cost?
$137.50
An investment adviser representative is looking for a suitable investment for a client. The IAR wishes to find something that will offer an attractive return commensurate with its systematic risk. The choices have been narrowed to Security C and Security L, and the selection will be based on alpha. C has a beta of 1.0 and earned 13% which equalled its expected return, while L has a beta of 0.8 and earned 10.1%. The alpha of Security L is
-0.3
A bond investor's portfolio consists of the following 3 bonds: - ABC First Mortgage bond, current market value of $4 million with a duration of 5 years - DEF Debenture, current market value of $5 million with a duration of 8 years - U.S. Treasury bond, current market value of $1 million with a duration of 10 years What is the average duration of the portfolio?
7 years
Wrap fee accounts would tend to be most suitable for investors who follow
a tactical approach to investing
If a new customer will not state investment objectives and will not provide a financial statement, the agent may
accept unsolicited orders until the customer's suitability is determined
One of the distinguishing characteristics of an investment adviser (IA) is that of fiduciary responsibility to clients. That responsibility specifically requires the IA to
always place the client's interest ahead of its own
Under the USA, each of the following is specifically excluded from the definition of a broker-dealer except
an investment adviser
The main driver in cryptocurrency values is
asset appreciation
A consent to service of process allows the Administrator to
be the registrant's attorney to receive service of any lawful process in any noncriminal suit, action, or proceeding against the registrant or the registrant's successor
A technical analyst would be least concerned with
book value per share
Angela, a wealthy client of yours, has constructed her portfolio with individual common stocks that closely match the weighting of the S&P 500 index. In so doing, Angela has significantly reduced her
business risk
A customer is interested in an exchange-traded fund (ETF). With regard to the trading of ETFs, the customer should be aware of which of these? I. ETFs can be purchased throughout the trading day II. ETFs use forward pricing, as all mutual funds do III. Real-time quotes are available for ETFs IV. The NAV calculated at the end of the day, plus a sales charge, will equal the trading price
I and III
When an analyst adds back the current year's depreciation to the net income, she is computing the company's
cash flow from operations
The terms mean, median, and mode are all measures of
central tendency
ABC Securities is a broker-dealer registered with the SEC and domiciled in State M. ABC Securities is not be defined as a broker-dealer in State N under the Uniform Securities Act if it has no offices in State N and if which of the following are true? I. Its only clients are insurance companies. II. It has contact with fewer than six State N residents in any 12-month period. III. Its only solicitation of State N residents is through radio advertisements originating in State M but received in State N. IV. It occasionally engages in firm commitment underwriting with issuers based in State N.
I and IV
Which of the following statements concerning international direct investing is correct?
Information is not as readily available on foreign investments as on domestic ones
Which of the following statements regarding a unit investment trust is not true?
Overall responsibility for the fund rests with the board of directors
You have a client who has shown an interest in investing in precious metals. Which of the following could be an appropriate recommendation?
Palladium
Which of the following items are not included in the gross estate of a decedent?
Proceeds from a life insurance policy owned by the deceased's spouse
Which one of the following statements regarding a characteristic or use of a Roth IRA is correct?
Roth IRAs are not subject to the minimum distribution rules until the death of the owner-participant of the plan
The devaluation of a country's currency to improve its trade deficit would most likely benefit
a domestic producer of luxury goods for export
If your 39-year-old customer is the sole owner of a business, earns $260,000 per year, and makes the maximum contribution to a Keogh plan, how much money can be contributed to an IRA in 2024?
The current indexed maximum
ABC Investment Company shares are trading at $13.80 on a per-share basis. The net asset value (NAV) per share is $12.00. Which of the following conclusions correctly defines the relationship between trading price and NAV?
The fund's shares are trading at a premium of 15% to the NAV
Which of the following statements is true about sales of new issues under the Securities Exchange Act of 1934?
The use of credit to purchase new issues is prohibited for the first 30 days
An investment adviser (IA) is servicing a group of physicians and will offer a discounted fee to the doctors in that particular partnership. In what way would this be considered ethical?
This would be permitted as long as a disclosure is made in the IA's brochure that fees are negotiable
Your client has given you discretionary authority to trade her account with a beginning balance of $100,000. Market conditions have been volatile for the past six months, and her primary objective is long-term growth with low to moderate risk. A review of the account at the end of that period shows that while the Dow Jones Industrial Average has dropped by 2.2%, the client account value is $105,300. During the period, if commissions from trading totaled a bit over $6,000, it is likely that your principal will
discuss the possibility that you have been churning the account
By their very nature, pooled investment vehicles offer investors
diversification
An increase in the earnings per share growth rate from one reporting period to the next is called
earnings momentum
Bond prices are quoted as a percentage of
par value
Under NASAA's Model Rule dealing with Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser would have to disclose that the firm was acting in a principal capacity when
purchasing shares from advisory clients that were originally acquired as a result of the adviser's previous buy recommendation
Several years ago, an investor purchased $100,000 of U.S. Treasury bonds bearing a 2.80% coupon. Because of economic conditions, those bonds are now yielding 3.5% in the secondary markets. Therefore, the investor's semiannual income will
stay the same
If a customer holds certificates of beneficial interest in a real estate investment trust (REIT), all of the following statements regarding this investment are true except
the issuer must redeem certificates on shareholder request
One of the features of convertible preferred stock is that
the owner has the opportunity to participate in the growth of the company
Platinum Investment in Growth Group, Inc. (PIGGI) is registered in and has its principal office in State W. PIGGI has near-term plans to open offices in State A and B. In an effort to test the waters, PIGGI mails several hundred flyers to prospects in those two states. Under the Uniform Securities Act,
these flyers cannot be mailed until PIGGI is registered in States A and B
One of the best sources of financial information is found in the reports required to be filed with the SEC by publicly traded companies. The easiest way to access this information is by
using EDGAR
An agent of a registered broker-dealer contacts a retail client about an exciting investment opportunity. He tells the client that he has a draft of the sales literature describing the issue, but he cannot send it out because it has not yet been approved by the Administrator. The client begs the agent to send the document anyway, and not wanting to disappoint a good client, the agent complies with the request. Once the issue is effective, the client makes a substantial purchase based on the information in the previously received sales piece. In this case, the agent has
violated the provisions of the Uniform Securities Act
A fundamental analyst researching a stock is concerned with all of the following except
volume of shares traded
An investor interested in acquiring a convertible debenture as part of her investment portfolio would
want the safety of a fixed-income investment along with potential capital appreciation
Under the Uniform Securities Act, registration by coordination becomes effective
when the registration with the SEC becomes effective
Inverse ETFs are suitable primarily for investors
who have a very short time horizon
