Series 65 Practice Exam
Your client noticed that the listing for the CDL $100 par common stock in the Wall Street Journal indicated that the current yield of the stock was 4%. If the last trade was at $40 per share, more than likely, CDL is paying quarterly dividends of
$0.40
A corporation with a 6%, $25 par cumulative preferred paid $0.50 to preferred stockholders last year. This year, the company wants to pay common dividends. How much must it pay each preferred share?
$2.50
One of your customers purchased a TIPS bond three years ago. The bond's nominal yield is 4%, and inflation has averaged 6% over the holding period. The interest payment at the end of the three years would be closest to
$23.88
An index annuity has no cap on gains but guarantees a minimum return of 3.35% with an 80% participation rate. If the index increases by 15%, what is the rate of return to the investor?
12%
What is the current yield on ABC common stock that is selling for $60 per share with a semiannual dividend of $0.75 per share?
2.50%
Which of the following clients of a federal covered investment adviser are not exempt from the delivery requirements of the brochure rule?
An employee benefit plan with assets of at least $5 million
As specified in the Dodd-Frank Act of 2010, which of the following would NOT qualify for the private fund exemption?
An investment adviser who limits her advisory clients to insurance companies
With regard to nonqualified stock options (NQSOs) and incentive stock options (ISOs), which of the following statements is not correct?
Capital gain treatment is available only with NQSOs.
LMN, Inc., is preparing to report its net income for the past year. An increase in which of the following would not cause a decrease in the reported net income?
Cash dividends
What is the term generally given by analysts to the number generated by the addition of a company's annual depreciation expense to its net income?
Cash flow
Which of the following classes of mutual fund shares would be appropriate for an investor who doesn't mind paying some sales charges on a purchase but wants to minimize operating expenses over a long-term holding period?
Class A shares
Daphna works for Automated Asset Allocators (AAA), an investment adviser that has offices in States D, E, and F and is registered with the SEC. Daphna spends most of her time in an office in State D, but once every other week, she goes to the branch in State E. Daphna would be exempt from registration as an investment adviser representative (IAR) in which of the following states?
Daphna would be exempt in State F, where she has 227 retail clients.
Which of the following statements regarding REITs are true?
Equity REITs offer possible income and capital appreciation, In order to receive favorable tax benefits, the REIT must pay out at least 90% of its taxable income in the form of dividends.
Section 529 plans differ from Coverdell ESAs in that Section 529 plans offer which of the following?
Higher contribution limits, No earnings limitations
You are explaining to an advisory client that the U.S. economy goes through somewhat repeatable phases over a period of time. Which of these terms does not describe one of those business cycles?
Inflation
An investor is concerned that interest rates will be volatile over the next few years. Which of the following would eliminate interest rate risk?
Insured bank CDs
Which of the following activities might result in a positive yield curve in the bond market?
Investors buying short-term bonds and selling long-term bonds
In order to comply with the safe harbor requirements of Section 404(c) of ERISA, the trustee of a 401(k) plan must do which of the following?
Offer plan participants at least three different investment alternatives, allow plan participants to change their investment options no less frequently than quarterly
When an investor who is reviewing a brokerage account asks what else she could have done with her money, the investor is asking about which risk?
Opportunity risk
Which of the following is required for annual renewal of the registration of an investment adviser representative affiliated with a federal covered adviser?
Paying the state licensing fee
An investment adviser representative (IAR) is attempting to develop an investment plan for a client. The IAR decides to use two different mutual funds in an effort to provide appropriate diversification. Of the four pairs given below, which one would offer the most diversification?
Portfolio 7 and 8, with a correlation coefficient of -0.20
Upon reaching he age of 72, required minimum distributions (RMDs) do NOT have to be taken by retired individuals who are participants of
ROTH IRAs
A client with a bearish outlook on a particular stock would be able to benefit from taking which of the following actions?
Selling the stock short
Which of these forms of business structure carries the greatest personal liability?
Sole proprietorship
You have a client who is interested in a preferred stock with guaranteed dividends. What is likely the reason for using the term guaranteed?
Someone other than the issuer has guaranteed the payment of those dividends
Which of the following actions by an agent would be an unethical practice under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents?
Splitting commissions with a customer service representative who is not registered but works for the same firm
Which of the following forms of joint ownership is most associated with ownership of real estate?
Tenancy by the entirety
In which of the following instances would an investment adviser representative (IAR) be exempt from the antifraud rules of the Uniform Securities Act (USA)?
The IAR makes a presentation at a seminar where the only topic discussed is fixed annuities.
Initial and renewal contracts between investment advisers and their clients must be in writing when the contract is under the jurisdiction of which of the following?
The Investment Company Act of 1940, The Uniform Securities Act
One of your clients is a widow with three grown children. She wants the assets in her account to go to her children upon her death—50% to her daughter and 25% to each of her sons. She does not want the estate to have to deal with probate on these assets. How should her account be set up?
Transfer on death
Under the provisions of Regulation SP, a person who has an investment advisory contract with a registered investment adviser is known as
a customer
All of the following would decrease the U.S. balance of payments deficit except
a decrease in purchases of U.S. securities by foreign investors.
A life insurance policy with benefits tied to the performance of a separate account that allows the policyholder to skip premium payments is called
a flexible premium variable life insurance policy.
Which of the following is most commonly used when the author wants to express end-of-life wishes?
a living will
An investment adviser wishes to advertise a proprietary charting system used to time the market. In order to be in compliance with the Investment Advisers Act of 1940,
a statement reflecting the limitations and difficulties of using the system must be included in the ad.
An investor purchased one ABC October 50 call at 3 and one ABC October 50 put at 2. This position is
a straddle
When comparing futures and forwards, it would be correct to state that
futures are more commonly used by speculators than forwards.
The discounted rate that equates a bond's cash flow to its current price is known as the bond's
yield to maturity
A 46-year old investor wants to have retirement savings worth $1 million at age 70. If the investor can earn 9%, using the rule of 72, the present value needed today is closest to
$125,000
One of your clients has a marginal tax rate of 32%. The 35% tax bracket beings in another $30,000 of income. Should the client receive a bonus of $50,000, the federal income tax due on that would be
$16,500
An investor has many tax preference items. Computing the investor's income tax using the regular method results in a tax burden of $29,900 while computing the alternative minimum tax (AMT) results in a tax liability of $27,500. Based on this information, the investor's income tax liability for the year is
$29,900
Jonah purchased 100 shares of DEF common stock at a price of $25 per share on August 4, 2020. On December 1, 2021, with the stock selling for $29 per share, he gifted the stock to his daughter. She subsequently sold the stock nine months later for $32 per share. Her tax consequence is
$700 long-term capital gain.
While reviewing the financial statements of the ABC Corporation, you notice that the company has $5 million in cash on hand and $6 million in inventory. If the current assets total $15 million, the total assets are $22 million, and the current liabilities are $6 million, the quick asset ratio is
1.5:1 current assets minus inventory divided by the current liabilities
Current market interest rates are 6%. Using the discounted cash flow method of valuation, you would expect to arrive at the highest valuation for which of the following?
10% coupon maturing in 10 years
What is the tax-equivalent yield of a 7% municipal bond to an investor in the 35% federal income tax bracket?
10.77% take 7%/(100-35)
Early in the year, an investor purchased 100 shares of KAP common stock for $60 per share. Just prior to the end of the year, after receiving three quarterly dividends of $1, the investor liquidated all of the KAP at a price of $59 per share. If the Consumer Price Index (CPI) increased by 3%, the investor's total return over the holding period was
3.33%
On the basis of IRS guidelines, which of the following is most likely eligible to contribute to a Keogh plan?
A public school teacher who gets paid during her summer vacation to give motivational speeches to training directors at major brokerage firms
As defined in the Uniform Securities Act (USA), which of the following would be considered an exempt transaction?
A sale of stock by an administrator of an estate
Which of the following would offer your client check-writing privileges and FDIC insurance coverage?
Demand deposit account (DDA)
In October 1987, the SEC promulgated Release IA-1092, which had the effect of broadening the definition of investment adviser. As a result of the release, which of the following is included in the definition?
Entertainment agents earning a fee for negotiating contracts for their clients and then placing a portion of the client's royalties into investment-grade bonds or large-cap stocks as market conditions dictate Persons being compensated for assisting employee benefit plan administrators in selecting investment managers for the plan's assets
An advisory client is interested in learning more about municipal bonds. Which of the following statements are correct? I. General obligation bonds are usually, but not always, safer than revenue bonds II. Interest received on municipal bonds is generally free of both federal and state income taxes III. Municipal bonds are usually suitable for investors in higher tax brackets IV. The coupon yield on AAA rated municipal bonds will generally be slightly higher than that of AAA corporate binds with comparable maturity
I and III
Listed options are also known as standardized options. Which of the following choices is not one of the standardized terms of a listed option?
The premium
It would be reasonable to expect an increase in exports from the U.S. if which of the following happen?
The yen strengthened against the dollar, The dollar weakened against the British pound.
Each of the following would be exempt from the definition of an agent under the Uniform Securities Act except
Violet, an employee of the Widget Spinners Corporation, who is paid a commission on sales of the company stock to fellow employees.
In order to make a quantitative evaluation using the present value computation, which of the following is NOT needed?
account value at the beginning of the period
The head of marketing for a regional broker-dealer spots an article in the local newspaper that is an excellent presentation of an investment strategy the firm recommends. If the firm posts a link to the article on its website, it would be known as
adoption
Under the Uniform Securities Act, all of the following persons with no place of business in the state are exempt from registration as an investment adviser except
advisers who have conducted business with no more than sex clients, other than institutions, in the state within the past 12 months
A corporation is capitalized with common stock, senior preferred stock, mortgage bonds, and subordinated debentures. Your client, who holds $10,000 of the debentures, is concerned about the future viability of the enterprise. You can inform the client that the debentures have a claim
ahead of the common stock and the preferred stock but after the bonds.
A technical analyst who has been charting the common stock of KISS would most likely sell KISS stock short when the market price of the stock is
below the support level
An options strategy that would be most useful for an investor with a long position in a stock who is concerned that a proposed management change will negatively impact the stock's price would be to
buy a put on that stock.
A balance sheet shows that a corporation builds its capital structure with all of the following except
cash
Fiscal policy, as implemented by Congress and the administration entails
changing tax rates, running a budget deficit, increasing military spending
It would be considered an unethical business practice for a state-registered investment adviser to
claim that advisory fees are negotiable but maintain a fixed fee schedule
Most states have replaced the Uniform Gift to Minors Act (UGMA) with the Uniform Transfers to Minors Act (UTMA). One of the major advantages of UTMA is
greater flexibility in the choice of investments
There are thousands of cryptocurrencies, but all
have a digital representation of value that allows owners to use the cryptocurrency as a medium of exchange.
One would not typically place convertible bonds in the portfolio of an investor
seeking to maximize current income.
An investor has returns of 4%, 5%, and 9% over a three-year period. What is the investor's arithmetic mean?
6%
One of the differences between state and federal laws involving an investment adviser maintaining custody of customer funds and/or securities relates to the handling of client checks made payable to third parties such as broker-dealers. Which of the following properly expresses that difference?
Under state law, receipt of a check payable to an unrelated third party is considered to be custody unless forwarded to the third party within three business days of receipt.
Which of the following risks would most likely be minimized through portfolio diversification?
credit risk
Investors seeking current income would benefit from
selling call options.
An investor concerned about liquidity would be least likely to invest in
stock subject to Rule 144.
A significant difference between an account for a trust and an account for an estate is
the trust account will generally be active for a much longer period of time.
John was convicted five years ago of failure to pay child support—a misdemeanor in his home state. John would now like to register as an investment adviser representative in a neighboring state where that crime is considered a felony. Under the Uniform Securities Act, the administrator of the neighboring state
will disregard that conviction when determining John's qualifications for registration.
An investor indicates that her objective is long-term growth. Income is of secondary importance. While she is basically quite conservative, she feels her time horizon is long enough to give her a bit more risk tolerance. Which of the following common stock mutual fund selections would probably be most suitable?
75% large cap, 25% small cap
To be in compliance with the rules under the Investment Advisers Act of 1940, which two of the following statements are correct regarding a registered investment adviser's relationship with promoters engaged to solicit for advisory business? I. An individual who is subject to statutory disqualification from registration as an investment adviser representative may be compensated to solicit clients for the adviser when employed by a third-party promoter. II. If the compensation exceeds a de miminis amount, there must be a written agreement between the investment adviser and the solicitor. III. Although the sales script used may be written by the promoter, making sure that its content is fair and reasonable is the responsibility of the investment adviser. IV. Cash referral fees to promoters hired to solicit may be paid only in the case of impersonal advisory services.
II and II
Which of the following statements regarding agent registration under the Uniform Securities Act is true?
In the absence of any action by the administrator, the effective date of a registration is noon on the 30th day after the filing of a complete application.
During your initial interview with a couple who are potential advisory clients, you obtain the following information. He is 58, and she is 56. They both plan to continue working until she reaches 65 and is eligible for Medicare. As you begin to develop a plan for this couple, you would probably project their time horizon as
approximately 30 years.
NASAA's Model Rule on Business Continuity and Succession Planning (BCP) requires that investment advisers (IA) establish a plan that provides for each of the following except
assurance of continued profitability.
All of the following statements relating to ADRs are true except
currency risk is avoided
Gerald has been a client of yours for more than a decade. Over that period, the relationship expanded from business to socializing, including attending events with your spouses. One afternoon, Gerald's wife called, explaining that she just got off the phone with Gerald. Before hanging up, he asked her to contact you with a sell order in his account. Having had extensive social contact, you recognize her voice and know that their marriage is on strong footing. You should
explain that you cannot accept an order from anyone other than the account holder without having written trading authorization.
An investor would be entitled to a breakpoint on quantity purchases made together with all of the following accounts except
his brother with whom he regularly shares investment ideas
The weak form of the efficient market hypothesis
implies that technical analysis is not worthwhile.
Historically, common stock has been shown to protect against
inflation risk
One respect in which advertising by investment advisers differs from that of broker-dealers is that
investment adviser advertising is regulated by federal law while advertising by broker-dealers is regulated by FINRA.
When discussing the suitability of investing in direct participation programs, particular attention should be focused on which risks?
legislative and liquidity
One form of commodity investing is the purchase of precious metals. An investor in precious metals would be least likely to purchase
molybdenum only precious metals are gold, silver, platinum, and palladium
Irving Wilson works for Wall Street Limited (WSL), a registered investment adviser. He limits his advice exclusively to equity securities listed on the NYSE. Under the Uniform Securities Act, Irving
must register as an IAR.
When an investment adviser representative (IAR) terminates employment with a federal covered investment adviser and immediately accepts employment performing the same functions with a different federal covered investment adviser in the state where the individual resides,
only the investment adviser representative must notify the Administrator promptly.
Under the Uniform Securities Act, an investment adviser would have to disclose that the firm was acting in a principal capacity when
selling shares from its proprietary account to an advisory client.
Which of the following items do NOT fall within Section 28(e) safe harbor?
software used to simplify the investment adviser's preparation of its tax returns
Both state-registered and federal covered investment advisers have brochure delivery requirements. One significant difference between the two is that
state-registered advisers who do not deliver the brochure at least 48 hours prior to contract signing must offer a five-day, penalty-free withdrawal.
If a portfolio manager wished to reduce inflation risk, which of the following would be most appropriate to add to the portfolio?
tangible assets
With regard to an SEC-registered investment adviser employing the services of a promoter to solicit on its behalf, it would be correct to state that
the investment adviser may not compensate a solicitor who is subject to a statutory disqualification.
The fiduciary handling a qualified retirement plan usually provides a written document that sets forth the objectives and constraints on a managed portfolio. This document is called
the investment policy statement.
In the over-the-counter market, the person who performs the dealer function that a DMM is responsible for on an exchange is
the market maker
Arguably, determining a client's risk tolerance is the most critical step before making any recommendations. Methods of doing that would include knowing all of the following except
the name of other firms where the client has or has had an account.
The Uniform Securities Act provides civil penalties in the event of illegal activities of broker dealers and their agents. Under the act, a purchaser would not be entitled to claim
the original consideration paid for the security or the current market value, whichever is greater
Popular strategies used by bond investors to mitigate the effects of changes in interest rates include any of the following except
the strategy of lengthening the maturities of their holdings
Individuals who pass the Series 65 Exam will be able to tell prospects that
they passed a 130-question examination in order to qualify as investment adviser representatives
One of the purposes of filing the annual updating amendment to the Form ADV Part 1A is to
verify that the investment adviser still qualifies for SEC registration
