Series 65 practice ques Ch 16-17

the sharpe ratio measures: a. risk-adjusted rate of return relative to portfolio volatility b. Level of portfolio volatility relative to a benchmark portfolio c. Level of investment return relative to the dollar amount invested d. Risk-adjusted rate of return relative to the risk-free rate of return

a.

A market maker in the OTC market must be ready to purchase the security as the : a. Bid b. Ask c. Offer d. Spread

a. since the market maker must sell at the ask price (aka offer) and the spread is the difference between the two

assuming that prices fluctuate throughout the investing period, the use of dollar-cost averaging results in a: a. lower average cost per share b. higher average cost per share c. lower mkt price per share d. higher mkt price per share

a. when prices are lower, more shares are bought, which results in a lower average cost per share

The method of evaluating investment returns that calculates the interest rate which discounts cash inflows and outflows to a present value of zero is called: a. Inflation-adjusted return b. Internal rate of return c. Total return d. Net present value

b. "d" is incorrect because the method referred to incorporates the concept of net present value, but it is not a definition of that term.

A client has a significant gain in his holdings of ABC stock (a long position) and wants to protect that gain from a drop in the market. The appropriate order to place is: a. Market order b. Buy stop order c. Sell stop order d. Sell limit order

c. since the client would need to sell the stock before the market price falls beneath a certain level. A sell stop would become a market order if the stock reached that price. "d" is not correct, since it would not guarantee execution, and the client would not be protected.

Short sales of stocks may be purchased in what type of account(s)? a. Only in cash accounts b. Only in options accounts c. Only in margin accounts d. Either in an options or margin account

c. since only options may trade in an options account, and securities cannot be borrowed in a cash account.

an investor owns a small-cap with very low trading volume. The investor has a high level of a. business b. mkt c. liquidity d. purchasing power

c. while there is potential of business risk, liquidity is right becuase the ques focuses on low trading volume