Unit 5 - Series 65 Exam
B) increase by 30%
A bullish client invests into a 3x leveraged fund based on the S&P 500 Index. If the index should rise by 10%, your client's investment would be expected to A) increase by 20% B) increase by 30% C) decrease by 30% D) increase by 50%
C) lead.
A client wishing to invest in precious metals could consider each of the following except A) silver. B) platinum. C) lead. D) gold.
D) $0.
A high-net-worth client of yours invested $250,000 into an oil and gas limited partnership drilling program for which she received a 10% interest in the project. Unfortunately, after two years of drilling without success, the project was foreclosed with outstanding debt of $4 million. Your client is liable to the partnership's creditors for A) $250,000. B) $150,000. C) $400,000. D) $0.
B) leveraged ETFs may be purchased on margin
Among the characteristics of leveraged exchange-traded funds is that A) they are generally suitable for investors with a long time horizon. B) leveraged ETFs may be purchased on margin. C) they can only be sold to accredited investors. D) leveraged ETFs generally obtain the leverage through bank borrowing.
A) Platinum
An investment adviser representative (IAR) has several clients who are interested in adding precious metals to their portfolios. Which of the following is the IAR most likely to recommend? A) Platinum B) Copper C) Aluminum D) Nickel
C) platinum.
Commodities contracts are available on A) emeralds. B) pearls. C) platinum. D) diamonds.
C) direct participation plans.
Flow-through is one of the features of A) variable annuities. B) open-end investment companies. C) direct participation plans. D) REITs.
C) one who has limited liability.
In a DPP, a general partner is all of the following except A) a key executive who makes day-to-day business decisions. B) one who buys and sells the program's property. C) one who has limited liability. D) one who appoints the property manager.
B) utilizes derivatives to achieve its objectives.
It would be correct to state that an inverse ETF A) is suitable for sophisticated investors with a long time horizon. B) utilizes derivatives to achieve its objectives. C) is a form of private equity fund. D) moves in tandem with the index being tracked.
B) Nonfungible tokens
One of your clients calls to tell you that they overheard someone at work talking about investing in NFTs. What do those initials stand for? A) Neuroplastic functional training B) Nonfungible tokens C) No free ticket D) Nutrition and food technology
C) Real estate investment trust
Regarding the use of the term direct participation programs, when referring to tax-sheltered investments, which of the following is not a DPP? A) Real estate limited partnership B) Equipment leasing limited partnership C) Real estate investment trust D) Oil and gas limited partnership
A) Efficient pricing
The alternative asset investments class is least associated with which of the following characteristics? A) Efficient pricing B) Diversification C) Nonnormal returns D) Illiquidity
C) Efficient pricing
The alternative asset investments class is least associated with which of the following characteristics? A) Illiquidity B) Nonnormal returns C) Efficient pricing D) Diversification
A) Orange juice
The price of which of the following commodities is most likely to be impacted by weather? A) Orange juice B) Livestock C) Gold D) Lead
D) electronic communications such as email.
The term digital assets would include all of the following except A) stablecoins. B) cryptocurrency. C) nonfungible tokens. D) electronic communications such as email.
B) Aluminum
Which of the following would not be considered an agricultural commodity? A) Coffee B) Aluminum C) Soybeans D) Oats
C) I, II, III, and IV
An investor in a high tax bracket who invested in a DPP should have which of the following characteristics? Need for tax benefits Substantial liquid assets Ability to identify both risks and merits of the program Ability to commit money for a long time A) I and II B) II, III, and IV C) I, II, III, and IV D) II and III
D) platinum.
Commodities contracts are available on A) pearls. B) diamonds. C) emeralds. D) platinum.
C) ETNs
Which of the following investments is not registered under the Investment Company Act of 1940? A) FACCs B) ETFs C) ETNs D) UITs
D) Alternative investments
Which of the following terms best describes ETNs and leveraged ETFs? A) Speculative investments B) Forms of hedge funds C) Registered investment companies D) Alternative investments
C) An inverse fund
Your client has turned bearish on the market, but does not have a margin account. Which of the following securities would probably best meet your client's needs? A) A balanced mutual fund B) An interest rate swap C) An inverse fund D) A long call option
D) a holder of common stock in a corporation.
Being a limited partner in a direct participation program is analogous to being A) a holder of secured corporate debt. B) a member of the board of directors of a corporation. C) an agent of a broker-dealer. D) a holder of common stock in a corporation.
C) Bullish
For a customer interested in buying an inverse exchange-traded fund (ETF) tracking the performance of the Standard & Poor's 500 Index, which of the following market views would make that purchase most inappropriate? A) Bearish B) Neutral C) Bullish D) Bullish or bearish
D) Common stock listed on the New York Stock Exchange/unit in a direct participation program (DPP)
If near-term liquidity is the only objective for a client, which of the following pairs of investments represents the most/least liquid? A) 10-year corporate bonds/U.S. T-bills B) Annuity units of a variable annuity/unit in a direct participation program (DPP) C) Variable annuity accumulation unit/money market mutual fund shares D) Common stock listed on the New York Stock Exchange/unit in a direct participation program (DPP)
A) The general partners
In a limited partnership program, which partners manage the partnership's day-to-day operations and incur unlimited personal liability for the partnership's debts? A) The general partners B) Both the general partners and the limited partners C) The limited partners D) Neither the general partners nor the limited partners
D) investing in futures contracts.
In general, an investor wishing to gain economic exposure to commodities would find it easiest to do so by A) growing the commodity. B) investing in forwards contracts. C) buying the commodity directly. D) investing in futures contracts.
C) derivatives and debt.
In order to achieve its goals, an inverse ETF uses A) preemptive rights. B) short selling. C) derivatives and debt. D) arbitrage.
B) with a very short time horizon.
Inverse ETFs are suitable primarily for investors A) wishing to leverage their income. B) with a very short time horizon. C) who follow a passive investment strategy. D) who are bullish on the market's future.
C) portfolio diversification.
Many sophisticated investors have added alternative investments to their portfolios. Benefits in doing so include A) returns that almost always exceed those of traditional stock and bond investments. B) greater regulation than traditional investments such as stocks and bonds. C) portfolio diversification. D) lower expenses than traditional stock and bond investments.
A) a potential inflation hedge.
One of the benefits of adding precious metals to an investor's portfolio is A) a potential inflation hedge. B) generous income. C) low transaction costs. D) a high correlation to the stock market.
D) A limited partnership in rental real estate
One of your clients approaches you and is looking for an investment that will provide ready marketability and income. Which of the following would be the least appropriate recommendation? A) A money market mutual fund B) U.S. Treasury notes C) NYSE-listed preferred stock D) A limited partnership in rental real estate
C) a nonfungible token.
One of your clients expresses interest in purchasing a unique piece of art in digital form. More than likely, the client is referring to A) a new way to decorate the home. B) cryptocurrency. C) a nonfungible token. D) a way to add liquidity to the portfolio.
A) the inflation rate.
One reason for including commodities in an investment portfolio is because they have a high correlation to A) the inflation rate. B) the stock market. C) the U.S. dollar. D) the bond market.
C) 21 million coins
What is the maximum amount of bitcoin that will ever be in circulation? A) 194,425 coins B) 21 billion coins C) 21 million coins D) Indefinite number of coins
A) ABC Inverse ETF
Which of the following ETFs would have a negative correlation with the underlying index? A) ABC Inverse ETF B) DEF Large-Cap ETF C) JKL World Equity ETF D) GHI Small-Cap ETF
B) Direct participation program
Which of the following investments is least appropriate for a client primarily concerned with liquidity? A) Preferred stock B) Direct participation program C) Bank savings account D) Municipal bond mutual fund
C) Structured products improve market completeness.
Which of the following is a motivation for creating structured products? A) Structured products improve profits for broker-dealers. B) Structured products are less expensive for investors to buy and trade. C) Structured products improve market completeness. D) Structured products reduce costs to issuers.
C) Tax-free income
Which of the following is not a characteristic of owning a limited partnership? A) Legislative risk B) Flow-through of income and expenses of a business to the individual limited partner C) Tax-free income D) An investment managed by others
C) Tax-free income
Which of the following is not a feature of owning a limited partnership? A) Legislative risk B) An investment managed by others C) Tax-free income D) Flow-through of income and expenses of a business to the individual limited partner
B) Their value can be impacted by changes in the issuer's credit rating.
Which of the following is true regarding ETNs? A) As fixed-income investments, they do not have market risk. B) Their value can be impacted by changes in the issuer's credit rating. C) They are noncallable prior to maturity. D) They are suitable for conservative investors seeking income.
D) less liquid and provide more opportunity for diversification.
With respect to liquidity and potential for diversification, in comparing alternative investments to exchange-traded stocks, the markets for alternative investments are generally A) more liquid and provide less opportunity for diversification. B) less liquid and provide less opportunity for diversification. C) more liquid and provide more opportunity for diversification. D) less liquid and provide more opportunity for diversification.
D) only deduct the passive loss against passive income.
Your client who owns a DPP that generated a $10,000 passive loss for the year could A) deduct $10,000 against capital gains. B) deduct $3,000 against ordinary income and carry over the rest. C) deduct $10,000 against ordinary income. D) only deduct the passive loss against passive income.
D) Rather than being a separate taxable entity, the program's income or losses pass-through directly to the investors.
A client was reading an offering document for an oil and gas drilling limited partnership program and noticed that one of the features was flow-through benefits. How would you explain this? A) Investors in the program are assured of a steady flow of income if the drilling is successful. B) Losses generated by the program pass-through to the investor and may be deducted in full against ordinary income. C) Once the program has paid taxes on its income, the entire remaining balance passes-through to the investors. D) Rather than being a separate taxable entity, the program's income or losses pass-through directly to the investors.
B) III, I, II
In discussing a direct participation program with your customer, rank the following items in order of importance from most to least. Tax write-offs Liquidity and marketability Potential for economic gain A) III, II, I B) III, I, II C) II, III, I D) I, II, III
A) consumer durables.
Investing in commodities could involve investing in any of these except A) consumer durables. B) industrial metals. C) agricultural items. D) animals.
C) utilizes derivatives to achieve its objectives.
It would be correct to state that an inverse ETF A) is a form of private equity fund. B) moves in tandem with the index being tracked. C) utilizes derivatives to achieve its objectives. D) is suitable for sophisticated investors with a long time horizon.
A) leveraged ETFs.
One of your clients is 10 years away from retirement and is trying to decide what would be a suitable investment for this year's IRA contribution. You would probably not recommend A) leveraged ETFs. B) target date mutual funds. C) conservative growth mutual funds. D) broad market ETFs.
D) commodity returns have a low or negative correlation to the other assets in her portfolio.
One of your clients is considering allocating about 10% of her portfolio to commodities. Her current portfolio is a mix of stocks, bonds, and broad market index ETFs. Relative to her existing portfolio, you would explain to her that the primary benefit of the commodity investment is most likely A) an increase in the reliability of income generated in the portfolio. B) increased short-term performance. C) lower trading costs. D) commodity returns have a low or negative correlation to the other assets in her portfolio.
B) perform contrary to a benchmark market index such as the S&P 500.
One type of alternative investment considered to be a pooled investment vehicle is the inverse exchange-traded fund (ETF). Inverse ETFs, also known as bear or short funds, are managed to A) be profitable only when interest rates are rising. B) perform contrary to a benchmark market index such as the S&P 500. C) outperform a benchmark market index such as the S&P 500. D) be used only by professional traders and market makers.
D) I, II, III, and IV
Which of the following must be considered in evaluating the suitability of a DPP investment for a customer? Risk tolerance Other holdings Financial situation Age A) I and II B) II and III C) I and IV D) I, II, III, and IV
B) Limited partners have the option to actively manage the business operations.
Which of the following statements is not true? A) It is the general partners rather than the limited partners who bear the liability for partnership debt. B) Limited partners have the option to actively manage the business operations. C) Management of the enterprise is solely within the jurisdiction of the general partner(s). D) Limited partners are not liable for funds in excess of the amounts they have invested or otherwise committed for.
D) Alternative investments
Which of the following terms best describes ETNs and leveraged ETFs? A) Speculative investments B) Registered investment companies C) Forms of hedge funds D) Alternative investments
C) less liquid and provide more opportunity for diversification.
With respect to liquidity and potential for diversification, in comparing alternative investments to exchange-traded stocks, the markets for alternative investments are generally A) more liquid and provide more opportunity for diversification. B) less liquid and provide less opportunity for diversification. C) less liquid and provide more opportunity for diversification. D) more liquid and provide less opportunity for diversification.
D) ETNs are issued by financial institutions; therefore, I should be concerned about the credit worthiness of the issuer.
Your customer is asking if either exchange-traded funds (ETFs) or exchange-traded notes (ETNs) might be suitable investments for his portfolio. The customer makes several statements regarding his understanding of the products, but only one of them is accurate. Which is it? A) If I want to sell my shares of an ETF, I have to wait until the next price is calculated to value the portfolio of securities. B) ETNs are equity securities because they trade on exchanges. C) ETFs have a fixed coupon rate that I should expect to realize when they mature. D) ETNs are issued by financial institutions; therefore, I should be concerned about the credit worthiness of the issuer.
C) there are no unusual risks associated with these funds other than those one would incur with any index tracking fund.
Your customer is interested in a leveraged fund and makes the following statements about leveraged funds to you. All of the statements regarding leveraged funds are true except A) some leveraged funds are exchange-traded products. B) these funds sometimes use derivatives products to achieve their stated goals. C) there are no unusual risks associated with these funds other than those one would incur with any index tracking fund. D) the funds attempt to return a multiple of the return of a benchmark index they are tracking, perhaps two or three times.
