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Series 65 Practice EXAM questions with correct answers graded A+
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Series 65 Practice EXAM questions with correct answers graded A+
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Series 65 Practice EXAMCurrent 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?
A) 7% coupon maturing in 9 years
B) 10% coupon maturing in 10 years
C) 5% coupon maturing in 20 years
D) Zero-coupon bond maturing in 11 years - correct answer ✔✔B
The discounted cash flow method considers the future expected free cash flow (the interest payments
plus the eventual return of the principal) and discounting it to arrive at a present value. In its simplest
iteration, this is nothing more than taking all the money you are scheduled to receive over a given future
period and adjusting that for the time value of money. In general, bonds with higher coupons will have
the greatest value because they will clearly produce the most cash flow, and zero-coupon bonds will
produce the lowest because they have no cash flow other than the return of the face value at maturity.
One would not normally place convertible bonds in the portfolio of an investor
A) who is bullish on the future for a specific issuer's common stock
B) seeking to maximize current income
C) seeking capital gains
D) seeking a position senior to that of common stock - correct answer ✔✔B
A conversion feature is a benefit to the bondholder. It allows the bondholder a choice to either continue
holding the debt represented by the bond or to convert the bond into shares of common stock of the
underlying issuer. Everything that is done in the securities industry has to be a win-win situation. The win
for the bondholder in this instance is the ability to take advantage of the capital appreciation potential
the common stock may offer, and the win for the issuer is that by offering something extra to the bond
purchaser, the bond purchaser is willing to accept a lower interest rate on the bond (as compared to a
nonconvertible bond), and therefore, giving the issuer a lower cost of capital.
,Which of the following items does NOT fall within the Section 28(e) safe harbor?
A) Software used to simplify the investment adviser's preparation of its tax returns
B) Proprietary research reports analyzing the performance of a specific industry
C) Software used to analyze client's portfolios
D) Research reports prepared by a third party other than the broker-dealer - correct answer ✔✔A
Research reports, whether prepared by the firm or by a third party, fall within the safe harbor provisions
of Section 28(e). Software used to analyze securities is also permissible since that benefits the client. Tax
preparation software benefits the adviser, but not the client.
A significant difference between opening an account for a trust and an account for an estate is
A) the standard of prudent investing applies to trusts, but not to executors
B) banks can be named as trustees for a trust, but not as an executor
C) only the estate has beneficiaries
D) the trust account will generally be active for a much longer period of time - correct answer ✔✔D
Trusts can be set up to run for many years; the executor's job is over once the estate has been settled.
Richard, Tim, Sam, and Fred have a regular golf foursome every weekend. During one of their outings,
they decide it is time they did something constructive with their money by opening an account with a
brokerage firm. If the account is opened tenants in common, suitability information would be required
on
A)
each of the individuals, and if married, their spouses
B)
only that individual with the authorization to trade the account
C)
,each of the four individuals
D)
whichever person has been designated by the group as its spokesman - correct answer ✔✔C
On any joint account, it is required to obtain suitability information on all of the account owners.
Prudent Asset Construction Enterprises (PACE) has offices in states X, Y, and Z. On their last annual
updating amendment, they reported AUM of $218 million. In which of the following instances would
PACE be receiving a substantial prepayment of fees?
A)
$1,600, paid at the first of each quarter
B)
$1,600, paid one year in advance
C)
$600, paid six or more months in advance
D)
$10,000, paid monthly - correct answer ✔✔B
First of all, this is an SEC registered IA, so we have to go by the federal numbers. Those are more than
$1,200, six or more months in advance. The $600 would have been substantial if PACE was state-
registered. Although the other two choices are above $1,200, they are not prepaid for at least six
months.
All of the following would decrease the U.S. balance of payments deficit EXCEPT
A)
a decrease in purchases of U.S. securities by foreign investors
B)
a decrease in imports of foreign goods into the U.S.
, C)
an increase in exports of domestic goods from the U.S.
D)
a decrease in dividend payments by U.S. companies to foreign investors - correct answer ✔✔A
Anything that will bring foreign money to the U.S. will decrease the balance of payments. Foreign
investors pulling their money out of the U.S. or investing less in the U.S. will increase the deficit.
Popular strategies used by bond investors to mitigate the effects of changes in interest rates would
include any of the following EXCEPT
A)
the laddering strategy
B)
the barbell strategy
C)
the strategy of lengthening the maturities of their holdings
D)
the bullet strategy - correct answer ✔✔C
For those concerned about the effects of interest rate fluctuations on their portfolio, increasing the
length of the maturities would increase, rather than decrease, the risk.
Daphna works for Automated Asset Allocators (AAA), an investment adviser having offices in States D, E,
and F and 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
IAR in which of the following states?
A)
State E, where she has no retail clients
B)
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