Series 65 Practice Exam 6

1. As measured by the consumer price index, inflation in Year 1 was 3.5%. In Year 2, inflation was 2.5%. This change in inflation from Year 1 to Year 2 is best described as:

2. A Treasury bill pays interest:

3. If a FINRA member has filed for bankruptcy within the last 10 years, this could lead to:

4. A partner, officer, director, or other individual associated with an investment adviser who gives advice regarding securities is known as a(n):

5. Which one of the following would be considered a security?

6. Raymond created a revocable living trust, naming his daughter as the sole beneficiary. He transferred the title to his home as well as a brokerage account to the trust. Which one of the following statements is correct regarding this arrangement?

7. Which one of the following investments is considered a permitted investment in a traditional IRA?

8. With respect to business continuity planning, FINRA rules require a firm to disclose to its customers:

9. Which of the following exchanges of insurance products may result in income taxation?

10. Which one of the following represents a type of debt issued by a national government in a foreign currency in order to finance the issuing country’s growth?

11. Under the Uniform Securities Act, which one of the following individuals would be considered an agent?

12. The income earned by a simple trust is taxed to the:

13. Scott and Stacy are married and have two daughters, Jean and Liz. They have the following bank accounts:

• Scott’s individual account: $550,000
• Stacy’s individual account: $300,000
• Scott and Stacy’s joint account: $350,000
• Stacy and Jean’s joint account: $150,000

What amount of the money in the family's accounts will be insured by the FDIC?

14. Which one of the following statements is correct regarding a unit investment trust?

15. A correct statement regarding variable life insurance is that it:

16. Which one of the following statements is correct regarding Section 529 plans?

17. Each of the following assets has a fair market value of $19,000. From an income tax perspective, which one of the following would be the best asset to donate to a public charity?

18. Janice purchased a bond portfolio consisting of 50% short-term bonds and 50% long-term bonds. What type of bond strategy has Janice implemented?

19. Ace Company stock will pay a dividend in one year in the amount of $2 per share. The dividend will increase at a constant rate of 3% thereafter. If investors have a required rate of return of 8%, what is the value per share of Ace Company stock under the constant dividend growth model?

20. Which one of the following option strategies involves holding a long position in both a put and a call for the same underlying security, with both options having the same strike price and expiration date?

21. John, age 53, took a $25,000 distribution from his 401(k) plan. The 401(k) plan was from a previous employer. John used the proceeds to pay for his son’s college tuition. Which one of the following statements is correct regarding the taxation of the 401(k) plan distribution?

22. Sector rotation is a:

23. A customer working with a broker would buy a security from the broker at which one of the following prices?

24. The duration of a bond is least affected by the:

25. Constance owns a baseball card collection that is currently valued at $60,000. She purchased the collection for $15,000 several years ago. Assuming her rate of return has been 9% on this investment, approximately when did she purchase the baseball card collection?

26. An investment adviser that wants to exercise discretionary authority over a client’s account must receive written approval from the client within how many business days after the first trade based on oral authority?

27. Christopher, a resident of California, purchased a state of California municipal bond. Which of the following represents the taxation of the interest?

28. In the current economic environment, Treasury bills are being issued with a rate of 3.5%, and Treasury bonds are being issued with a rate of 3%. This is an example of:

29. Which one of the following statements is correct regarding risk?

30. Currently, a call option on ABC Company stock is selling for a premium of $3. The call option has a strike price of $40. If ABC Company stock is trading at $42 per share, what is the intrinsic value and the speculative value of the call option, respectively?

31. An investor establishes a portfolio target of 70% stocks and 30% fixed income. After a particularly strong year for the stock market, the percentage of the portfolio represented by stocks has drifted up to 80%. The investor reduces their stock percentage from 80% down to the target of 70% and uses the sale proceeds to increase their fixed income percentage back up to 30% of the portfolio. The investor is practicing:

32. Which of the following statements is correct regarding a Section 529 college savings plan?

33. Which one of the following represents an order to purchase a security at or below a specified price?

34. All of the following represent SEC responsibilities of a registered investment adviser, EXCEPT:

35. Which one of the following statements is correct regarding ratio analysis?

36. A client is determining which investment opportunity to purchase. The investments have a $200,000 cost of entry. The client is comfortable with the market risk necessary to generate a 13% rate of return in today’s economic environment. All of the projects he is evaluating have an equal level of risk. Given the expected cash flows, which of the following investments should the client purchase?

37. Before it can be sold, if an offering is defined as a security, it must be registered in the state in which it is going to be offered. All of the following offerings would be defined as a security, EXCEPT:

38. Which one of the following statements is correct regarding classifications of risk?

39. Scott is an investment adviser living and practicing in Texas. He currently has assets under management of $105,000,000. Which one of the following best represents Scott’s registration requirements?

40. If an investment adviser (IA) fails to provide a brochure to a prospective client at least 48 hours prior to the signing of the advisory contract, the client can cancel the contract and receive a full refund of advisory fees paid within:

41. Which phase of the business cycle best describes high unemployment combined with low interest rates?

42. An investor who believes in the strong form of the Efficient Market Hypothesis would likely:

43. Benedict is a sole proprietor with no employees. He is currently age 57 and plans on retiring at age 64. In the current tax year, he will have approximately $400,000 of net self-employment earnings. Benedict does not have a retirement plan for his business currently, but he would like to establish a retirement plan that would permit the maximum tax-deductible contribution. Assuming the business has adequate cash flow, which one of the following retirement plans would be most appropriate for Benedict to establish?

44. Awesome Mutual Fund wants to purchase research from the ABC Brokerage. Awesome offers to pay for the research by agreeing to spend at least $30,000 in commissions for brokerage services in exchange for the research. The $30,000 payment is an example of:

45. Ian is an agent for ABC Brokerage. Tommy is Ian’s client. Tommy wants to purchase stock of Washburn Company, which is a private company not traded on public exchanges. Washburn is offering stock directly through an agency that underwrites private placements. ABC Brokerage has not performed the necessary due diligence on Washburn Company, so their private stock is not on the list of approved products for sale. Ian, however, wants to earn the commission associated with the sale of Washburn Company stock, so Ian completes the transaction on behalf of Tommy by using a third-party broker, Discount Securities, who has approval for Washburn Company stock. Ian has engaged in:

46. A stock of a company in which one of the following industries would be considered a defensive stock?

47. The Davis Fund had returns of 18% over the evaluation period and the benchmark portfolio yielded a return of 17% over the same period. Over the evaluation period, the standard deviation of returns from the Fund was 15% and the standard deviation of returns from the benchmark portfolio was 21%. Assuming a risk-free rate of return of 8%, which one of the following is the calculation of the Sharpe ratio for the fund over the evaluation period?

48. On a company’s income statement, which one of the following represents sales less cost of goods sold?

49. David purchased CoolCo stock for $50 per share. He received a dividend of $2 per share, then sold the stock for $45. What was David’s rate of return on his investment?

50. Which one of the following measures a stock’s volatility in relation to the overall market?

51. The set of optimal portfolios that offer the highest expected return for a defined level of risk or the lowest risk for a given level of expected return is referred to as the:

52. The SEC requires publicly traded companies to file a quarterly report for each of the first three quarters of the fiscal year. This report includes unaudited financial statements and a list of material events that have occurred with the company during the prior three months. This report filed is called the:

53. Which one of the following represents a liquidity ratio that measures an organization’s ability to meet its current financial obligations?

54. Which one of the following represents the risk that an asset cannot be sold on short notice without incurring a loss?

55. Which one of the following statements is correct regarding preferred stock?

56. A credit card company sold its receivables to David for cash. The interest and principal repayments on the credit cards will be passed directly to David after passing through the credit card company. David has purchased a(n):

57. Donny invested all of his cash in an S&P 500 index mutual fund. This is representative of:

58. Which one of the following is the determining factor as to whether a security is being traded in the primary or secondary market?

59. A specialty insurer has been the only insurer offering liability insurance in West Texas over the last few years. Another insurer has decided to start offering liability insurance in West Texas beginning next month. Which one of the following risks is the specialty insurer exposed to in this situation?

60. Which one of the following represents a statement of all transactions made between entities in one country and the rest of the world over a defined period?

61. Which one of the following represents a difference between a trader and a market maker?

62. Which one of the following securities would settle one business day after the trade date (T + 1)?

63. Assuming a long investment time horizon, which one of the following classes of mutual fund shares would have the largest cumulative sales charge?

64. Which one of the following represents a risk that is applicable to callable bonds but is not applicable to non-callable bonds?

65. Which one of the following statements is correct regarding American options?

66. A difference between publicly traded REITs and public non-traded REITs is that only publicly traded REITs:

67. Which one of the following represents a common form of money laundering in which the criminal conceals the source of the money through a series of transactions and bookkeeping deception?

68. Which one of the following represents a characteristic of a discretionary account?

69. Which of the following statements is correct regarding the primary market?

70. Which of the following represents an aspect of a performance fee that is intended to motivate a hedge fund manager?

71. Charlie learns about nonpublic material information from his cousin, Lisa, and shares it with a friend, Tom. If Tom uses this insider information to profit in the stock market, who could be prosecuted?

72. A typical hedge fund manager fee is:

73. Which one of the following would be considered an investment adviser under the Uniform Securities Act?

74. Biff, a registered representative, owns 500 shares of Super Company stock. The stock of Super Company is thinly traded. Biff’s customer, Lorraine, owns 10,000 shares of Super Company stock. Lorraine called Biff and asked him to sell all 10,000 of her shares. Prior to executing the trade, Biff sold all 500 of his own shares. This represents the market manipulation practice of:

75. Which of the following dates related to dividends occurs the earliest?

76. FINRA’s Anti-Money Laundering (AML) rules require the majority of firms to conduct independent testing of their AML program at least:

77. If an investor has only purchased shares in 15 large cap technology companies, which of the following categories of risk are they most likely subject to?

78. All of the following statements are correct regarding warrants EXCEPT:

79. All of the following statements are correct regarding liability under the Investment Adviser’s Act of 1940 EXCEPT:

80. An investor who sells a call option and a put option on the same underlying security with the same exercise price has done which of the following strategies?

81. Which one of the following is a permissible performance guarantee that can be made by an agent or investment adviser representative?

82. When an investment adviser representative terminates an association with a state-registered investment adviser:

83. Lisa received an inheritance of mutual funds from her friend Mick. Mick purchased the mutual funds for $60,000 five years ago, and the funds were worth $110,000 at the time of Mick’s death. Two weeks after receiving the inheritance, Lisa sold the mutual funds for $120,000. What is Lisa’s recognized gain on the sale?

84. Each of the following bonds have a 15-year maturity. Which one of the bonds will be the most volatile when market interest rates change?

85. Most Initial Public Offerings (IPOs) are registered through a:

86. Which one of the following investments would be most appropriate to own during a bear market?

87. Blake is an investment adviser representative. He says to a client, “if you invest in government securities, you might experience a lower return than you would experience with equities, but you won’t lose principal.” Is Blake’s comment permitted under the Uniform Securities Act?

88. The most important consideration in deciding whether a client should save on a tax-deferred or tax-exempt basis is:

89. If an adviser uncovers a conflict of interest with a client, which of the following would be the best course of action for the adviser?

90. Which of the following situations would result in a taxable gift?

91. Past performance is not representative of future results, according to:

92. Diversification of risk of a portfolio is the primary principle of which of the following?

93. If a client wanted to know what type of strategies are used by an investment adviser, that information would be reported on:

94. Under the Uniform Securities Act, investment advisory contracts:

95. A mutual fund has 1 million shares outstanding, a portfolio with a market value of $31 million, liabilities of $1 million, and charges a 4% front-end load. What would be the total cost to an investor purchasing 100 shares?

96. Which one of the following products is designed to provide both growth and income?

97. A correct statement regarding convertible preferred stock is that it:

98. Sandra, age 40, established a traditional IRA 10 years ago. When she opened the account, she contributed $5,000 on an after-tax basis. She did not make any additional contributions to the account. Today, the account is worth $11,000. Sandra withdrew the entire $11,000 from the account and used the funds to pay for her son’s college tuition. Which of the following statements is correct regarding the taxation of the $11,000 distribution from the traditional IRA?

99. Timmy has been tracking interest rates and believes they will dramatically increase this year. What type of bond portfolio would be most subject to price risk in this environment?

100. The primary purpose of the Financial Crimes Enforcement Network (FinCEN) is to:

101. A correct statement regarding a municipal fund security is that it:

102. Which one of the following statements is correct regarding Form U4?

103. Which one of the following situations requires membership in FINRA?

104. Which one of the following statements is correct regarding market manipulation?

105. Tara, a registered representative, received a customer complaint. Her first course of action should be to:

106. Which one of the following retirement plans can only be established by a tax-exempt organization?

107. If a registered representative makes a contribution to an elected local or state government official or a candidate in excess of a de minimis amount:

108. Which one of the following actions can only be performed by a person registered with FINRA?

109. XYZ Company stock is currently trading for $50 per share. Ronnie sold a put option on XYZ Company stock with a strike price of $48, receiving a premium of $3. Which one of the following statements is correct regarding this transaction?

110. If a 45-year-old would like to take a $20,000 distribution from a retirement plan to pay for their son’s college tuition, which one of the following plans would permit a penalty-free withdrawal?

111. Which one of the following forms of business would require the filing of a Schedule K-1 with the Internal Revenue Service?

112. Given the following set of values:

13, 18, 13, 14, 13, 16, 14, 21, 13

Which one of the following statements is correct?

113. Which one of the following would be used by an investor practicing fundamental analysis?

114. James has two children, Jack (age 17) and Diane (age 16). James contributed $20,000 to an UTMA account for Jack five years ago. He contributed $22,000 into an UTMA account for Diane four years ago. James now feels that Jack is not very responsible, so James asks his registered representative, Manny, to move the funds out of Jack’s UTMA account into Diane’s UTMA account. What action should Manny take regarding this request?

115. Which one of the following represents a characteristic of a variable annuity?

116. A correct statement regarding Treasury bonds is that they:

117. Charlie, a registered representative, overhears another registered representative on the phone with a customer. The customer is selling a significant stake in ABC Company. Charlie immediately sells all ABC Company stock in his own clients’ accounts. This is an example of:

118. Which one of the following represents the best definition of an RIA?

119. Tara opened a Section 529 plan three years ago with a contribution of $40,000. The account is now worth $45,000. Tara can take a full $45,000 distribution from the account completely tax free under which of the following situations?

120. Form U4 is used for the:

121. Kris sold a May 22.50 put option, receiving a $3 premium on the sale. The stock is currently trading for $24.50 per share. Kris will break even on this transaction if the stock price on the option expiration date is:

122. Mutual funds impose various fees and charges. Which one of the following would not be considered a mutual fund sales charge?

123. Which one of the following would be covered by FDIC insurance?

124. Val, age 60, is nearing retirement. He is interested in purchasing an investment that will provide him with a steady income stream. Which one of the following investments would be most appropriate to satisfy his income objective?

125. Which one of the following correctly represents a difference between a direct participation program and a real estate investment trust (REIT)?

126. A hypothecation agreement would be required for which one of the following types of accounts?

127. Which one of the following would be considered an investment adviser that would be required to register with the SEC?

128. Which one of the following statements is correct regarding an investment adviser representative (IAR)?

129. An investment adviser suggests that their client should move some of their money out of a market sector that has been consistently losing value. The client pushes back, saying they don’t want to sell at a loss. Which bias is this client likely exhibiting?

130. Which type of dividend does a company typically pay to investors?