Series 66 (Investment Vehicle Characteristics)
Which of the following is not an annuity purchase option?
Periodic payment immediate annuity
Which of the following statements about equity securities is NOT true?
Preferred stock is an equity security while common stock is a hybrid.
An investment adviser representative attends a seminar discussing derivative investments. It would be unlikely that there would be any mention of
REITs
Which of the following types of life insurance has premiums that increase each time the policy is renewed, and no cash value buildup?
Term
Which of the following statements regarding a $1,000 corporate 8.50% bond offered at 110 is TRUE?
The bond's current yield is calculated by dividing its annual interest by its market price.
ABC Investment Company shares are trading at $13.80 on a per-share basis. The net asset value 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 investment vehicles provides for redemption by the issuer?
Unit investment trust (UIT)
The term derivative would apply to which of the following?
Warrants
Which of the following is indicative of the primary difference between variable life insurance and straight whole life insurance?
Way in which the cash values are invested
Which of the following strategies would be considered most risky in a bull market?
Writing naked calls
The fee charged by some mutual fund companies if shares are redeemed within a specified time after being purchased is known as
a contingent-deferred sales charge
Starflier Mutual Fund, regulated under the Investment Company Act of 1940, wishes to change its investment policy. It may do so with approval of
a majority of the outstanding shares
A pooled investment fund buys all the shares of a publicly-traded company. The fund takes the company private, reorganizes the company, and replaces its management team. Three years later, the fund exits the investment through an initial public offering of the company's shares. This pooled investment fund is best described as
a private equity fund
A mutual fund's expense ratio is found by dividing its expenses by its
average annual net assets
A customer buys a 10-year 6% AAA bond at par when it was issued. Two years later, if the CPI has increased from 2% to 4%, the price of the bond most likely
has declined
When discussing the differences between purchasing a mutual fund and a hedge fund, the investor should be aware that
hedge funds do not offer the transparency of mutual funds.
Commodities contracts are available on
platinum.
An owner of an annuitized annuity can do all of the following EXCEPT
receive monthly payments for a defined period and then 2 years later change the contract to payment for life
When a client is interested in investing in commodities, you would expect to discuss
soybeans, wheat, and corn
In contrast with a typical forwards contract, futures contracts have:
standardized terms
Common stock listed on the New York Stock Exchange/unit in a direct participation program (DPP)
$24.00
The current yield on a bond with a coupon rate of 5.5% selling at 110 is
5%
A bond purchased at $900 with a 5% coupon and a 5-year maturity has a current yield of
5.56%
Which of the following best describes a 12b-1 fee?
A fee charged by some mutual funds to cover sales and distribution expenses
An option that may be exercised before its expiration date is said to be
American style
High-yield bonds are frequently called junk bonds. Which of the following expresses the highest rating that would apply to a junk bond?
BB
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 U.S.
If you overheard an analyst referring to an investment's indicative value, the discussion would most likely be about
ETNs.
Which of the following statements concerning equity securities is not correct?
Equity securities represent a lending interest in a corporation
Which of the following investments would NOT be considered an exchange-traded derivative?
Forwards
Which of the following analyze corporate financial statements and trends in sales and income?
Fundamentalists
If a customer assumes the risk involved with her variable annuity, what does this mean?
I and II
Which of the following statements are TRUE of a variable annuity?
I and III
Which of the following are regulated under the Securities Exchange Act of 1934? I. Broker-dealers II. Investment advisers III. Pension plans IV. Transfer agents
I and IV
In discussing a direct participation program with your customer, rank the following items in order of importance from most to least. I. Tax write-offs II. Liquidity and marketability III. Potential for economic gain
III, I, II
Which of the following would be least likely to be organized as a limited partnership?
An index ETF
Which of the following statements regarding an investment company's board of directors is NOT true?
An investment company's board of directors manages the portfolio on behalf of the investor shareholders
Which of the following statements regarding derivative securities is NOT true?
An owner of a put has the obligation to purchase securities at a designated price (the strike price) before a specified date (the expiration date).
An investor purchases a Treasury note and the confirmation shows a price of $102.25. Rounded to the nearest cent, the investor's cost, excluding commissions, is
$1,027.81.
Ms. Foster is retiring in 2 years and will need income. Which of the following mutual fund types would most likely be the least desirable for her?
A special situation fund
An individual wishing to invest $15,000 into a mutual fund with the intent of having it remain invested for at least 15 years should probably purchase
Class B shares with a 12b-1 fee of .75% and a 6-year declining CDSC after which they convert to Class A shares
Which of the following has the least exposure to inflation risk?
Common stock
An agent must obtain written verification of an investor's net worth for which of the following investments?
Direct participation programs
Which of the following are characteristics of a money market mutual fund? I. Shares are offered without a sales charge. II. There is a redemption fee. III. All purchasers must receive a copy of the prospectus. IV. The letter of intent must be signed within 16 months.
I and III
Assume that a corporation issues a 5% Aaa/AAA-rated debenture at par. Two years later, similarly rated debt issues are being offered in the primary market at 5.5%. Which of the following statements regarding the outstanding 5% debenture are TRUE? I. The current yield on the debenture will be higher than 5%. II. The current yield on the debenture will be lower than 5%. III. The dollar price per bond will be higher than par. IV. The dollar price per bond will be lower than par.
I and IV
Which of the following statements about technical analysis are TRUE? I. Technical analysis tries to identify trends and predict market changes. II. Technical analysis is often accomplished by reviewing data in the form of charts. III. Technical analysis looks primarily at past performance to predict future trends
I, II, and III
Which of the following statements correctly describe similarities between exchange-traded funds and closed-end investment companies? I. There are a limited number of outstanding shares. II. They are traded on registered stock exchanges. III. They trade at prices that are not dependent upon but close to their net asset value. IV. Investors pay commissions to purchase and liquidate their positions.
II and IV
Which of the following would be common features of mutual funds and hedge funds?
Investors have pooled their money together
Which of the following types of investments would have the lowest liquidity risk?
Money market funds
Which of the following would NOT be of interest to a technical analyst?
P/E ratio
Who safeguards the securities held in a mutual fund's portfolio?
The custodian
Which of the following factors has a direct relationship to a bond's duration?
Time to maturity
Assuming all of the following mature at about the same time, which of the following bonds should experience the greatest price decline if interest rates rise by 1%?
Treasury bond issued at par and carrying a 4% coupon
Louis owns an investment that is an unmanaged portfolio in which the money manager initially selects the securities to be included in the portfolio and then holds those securities until they mature or the investment portfolio terminates. This statement best describes which type of investment?
Unit investment trust
A manager of a venture capital fund would be most interested in investing in
a young, promising company
Last year, the bond market was profitable and ABC fund had 70% of its assets in bonds. Next year, the fund's managers expect the equity market to outperform and will adjust the fund's portfolio so that 60% of its assets will be invested in stock. ABC is most likely
an asset allocation fund
If an investor was of the opinion that the market was going to have a bad day, to maximize that investor's gains, you might recommend
an inverse leveraged ETF
All of the following statements regarding futures contracts are correct EXCEPT
completing a futures contract requires the delivery of the commodity.
In order to achieve its goals, an inverse ETF uses
derivatives and debt
If general interest rates increase, the interest income of an open-end bond fund whose sales exceed redemptions will likely
increase
When comparing the pricing of open-end investment companies with that of closed-end investment companies, it is correct to state that
only the open-end bases its price on the next computed net asset value per share.
An owner of an annuity that has been annuitized, can do all of the following EXCEPT
receive monthly payments for a defined period and then 2 years later change the contract to payment for life
The value of a variable annuity during the accumulation period is determined by
the number of accumulation units owned multiplied by the value of each unit
The long party to a put option contract has
the right to sell the underlying asset.
Shareholders of mutual funds have all of the following rights EXCEPT:
the right to vote on the selection of specific securities for the portfolio
All of the following pay dividends EXCEPT
warrants
Which of the following have equity positions in a corporation? I. Common stockholders II. Preferred stockholders III. Convertible bondholders I V. Mortgage bondholders
I and II
Investment companies must send financial reports to shareholders
semiannually
The DERP Corporation has an outstanding convertible bond issue that is convertible into 8 shares of stock. If the current market price of the bond is 80, the parity price of the stock is
$100 per share
A policyowner could surrender a whole life insurance policy and choose from all the following EXCEPT
transferring the policy to another person
If a client wishes to purchase a life insurance policy that doesn't invest in the market, but allows the holder to pay additional premium if desired, the recommendation is
universal life
Your client with $100,000 to invest is looking for maximum current income. Which of the following would offer the highest current return?
$100,000 market value of corporate bonds selling at a premium and yielding 6% to maturity
Which of the following statements regarding the properties of duration is NOT true?
Duration measures the holding period return on a bond
A client with limited assets seeking additional income in retirement would probably find which of the following investment choices to be the least suitable?
ETNs
John owns a nonqualified, tax-deferred annuity. When he retires, what will be the tax consequences of his annuity payments?
His annuity payments are partly taxable and partly tax-free return of capital.
Which of the following statements under the Investment Company Act of 1940 is TRUE?
Holding companies are not included in the definition of an investment company
Which of the following statements best describes cumulative preferred stock?
Owners have a continuing claim to their dividends, and all arrears must be paid before any dividends can be paid on common stock
If an investor wants to invest in the electronics industry but does not want to limit his investments to only one or two companies, which type of fund would be most suitable?
Specialized
Which of the following is a multi-option strategy?
Straddle
A REIT is able to pass-through which of the following?
Taxable income from operations
Mitch purchased a 30-year bond for 97¾ with a stated coupon rate of 8.5%. What is the approximate yield to maturity for this investment if Mitch receives semiannual coupon payments and expects to hold the bond to maturity?
8.67%
A bond analyst who determines the value of a debt security by adding the present value of the future coupons to the present value of the maturity value is using which of the following valuation methods?
Discounted cash flow
Which of the following statements is TRUE?
Dividends have a significant influence on the value of the corporation's stock.
The owner of a fixed annuity is protected against
longevity risk
A client has 100 shares of GHI when the stock undergoes a split. After the split, the client has
no effective change in the value of the position
You have a client who sold her $5 million whole life insurance policy through a life settlement broker. If she dies 2 years later,
the new owner receives the $5 million death benefit.
One year ago, ABC Widgets, Inc., funded an expansion to its manufacturing facilities by issuing a 20-year first mortgage bond. The bond is secured by the new building and land. The bond was issued with a 5.5% coupon and is currently rated Aa. The current market price of the bond is $105 resulting in a current yield of
5.24%.
News reports indicate that the wheat crop scheduled to be harvested in 3 months will be much larger than normal. To hedge, a wheat farmer would most likely
take a short position in wheat futures
An analytical tool used to project the current value of a common stock using projected future dividends is
the dividend discount model
Under the Investment Company Act of 1940, the reporting requirements investment companies must comply with include I. filing a report with the SEC annually, or more frequently if required II. sending semiannual reports to shareholders III. notifying shareholders of changes in the portfolio as those changes occur
I and II
Your client who owns a DPP that generated a $10,000 passive loss for the year could
only deduct the passive loss against passive income
An investor owns a 2x leveraged reverse ETF. If the underlying index should increase in value.
the fund shares will decrease in value by a factor of 2
One of your clients purchases a European-style put option on a stock. The premium is $3 and the exercise price is $35. If the price of the underlying asset is $40 on the exercise date, the client has
lost $300.
A customer wishes to invest $97,000 in the XYZ Growth Fund, which offers only Class A shares. If the fund has a breakpoint sales charge discount at the $100,000 investment level, the course of action least appropriate for an agent is to
simply place the order as instructed
If near-term liquidity is the only objective for a client, which of the following pairs of investments represents the most/least liquid?
Common stock listed on the New York Stock Exchange/unit in a direct participation program (DPP)
When contrasting call options, preemptive rights, and warrants, it would be correct to state
only preemptive rights and warrants are issued by the underlying corporation.
One would look at the average maturities when doing a cash flow analysis for
mortgage-backed pass-through securities
Which of the following would be a difference between a universal life insurance policy and a scheduled premium variable life insurance policy?
Premiums on a scheduled premium variable life policy are fixed, while those on a universal life policy are flexible
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
The return that will be earned over the life of a fixed annuity
will always be at least equal to the guaranteed minimum specified in the contract
