Series 65 Questions || Questions and 100% Accurate
Answers.
Which of the following are examples of systematic risk?
I) Business risk
II) Market risk
III) Interest rate risk
IV) Credit (default) risk
A) II, III, and IV
B) II and III
C) I and III
D) I, II, III, and IV correct answers B
Systematic risk affects entire groups of investments. Market risk and interest rate risk affect
stock and bond markets overall, respectively, and are therefore systematic. It generally helps to
remember the acronym PRIME representing the five tested systematic risks: Purchasing power;
Reinvestment; Interest rate; Market; Exchange rate.
A TIPS bond pays interest at the rate of 4%. If the annual inflation rate is 5%, what is the
principal value after the fourth year?
A) $1,200.00
B) $1,169.86
C) $1,171.66
D) $1,218.40 correct answers D
A TIPS bond's principal increases every six months based on the inflation (not the coupon) rate.
An annual inflation rate of 5% means the adjustment every six months is 2.5% of the principal.
At the test center, enter $1,000 and then multiply by 102.5%. Take that result and continue to
multiply by102.5% a total of eight times (there are eight six-month periods in four years). If you
remember our shortcut, you simply take the annual inflation rate, multiply that by the number of
years, and then take that percentage of the $1,000 par value. That would be 5% × 4 years = 20%
of $1,000 = $200 principal adjustment. That would make the principal $1,200, and we said to
take the next highest answer and that will be correct.
Which of the following is not related to the variability of a portfolio's returns?
A)Market timing
B)Asset allocation
C)Security selection
D)Total return correct answers D
Let's analyze the question. A portfolio's future returns can vary, that is, fluctuate based on
investment decisions made by the investor or adviser. The way the portfolio assets are allocated
between different classes of securities will have an impact on the returns. The same is true with
,the timing of purchases or sales (buying stock when bad economic news is announced is
probably not a good time). Finally, the specific securities selected will certainly impact the
returns of the portfolio. That leaves total return. Total return is a measurement of the investor's
past return on the portfolio. It measures what has happened and has no effect on future
variability.
Which of the following statements are true of a discretionary account at a broker-dealer?
I) It must be approved by a designated supervisory individual of the firm.
II) It must be reviewed frequently to minimize the chances that the account has been churned.
III) A discretionary order may be placed once the customer has placed a power of attorney in the
mail.
IV) It must be approved by the Administrator of the state of residence of the client.
A)II and IV
B)I and III
C)III and IV
D)I and II correct answers D
A new discretionary account must first be approved by a designated supervisory person, and the
account must be reviewed frequently for suitability and avoidance of churning. The written
discretionary power must be "in hand," not in the mail, before discretion may commence.
You have a 45-year-old client wishing to save for retirement. The client does not have a great
deal of investment sophistication and inquires about the risks you have exposed him to by
placing the majority of his portfolio in listed common stocks. You would respond that one risk
he should not concern himself with is:
A) liquidity risk
B) inflation risk
C) systematic risk
D) business risk correct answers A)
A portfolio of listed common stocks will have little to no liquidity risk because listed shares are
easily traded. Even though common stock tends to offer protection against inflation, there is no
assurance that the portfolio will keep pace with the rising cost of living. Historically, common
stock has offered protection against inflation. There are no guarantees, but a portfolio consisting
largely of common stock is the most likely to keep pace with the rising cost of living.
If a client has realized a capital gain from the sale of a municipal bond, to reduce tax liability, the
capital gain can be offset against a capital loss in which of these?
I) GOs
II) Equity securities
III) Corporate bonds
IV) REITs
,A)I and II
B)II and III
C)I only
D)I, II, III, and IV correct answers D
A realized capital gain on a security may be offset by a capital loss realized from the sale of any
type of security, including municipal bonds, equities, corporate bonds, or REITs.
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
A) lost $200.
B) made $200.
C) made $500.
D) lost $300. correct answers D
This option is out of the money and is therefore worthless. Remember, European-style options
are exercisable only at expiration, and a $35 put is worth nothing unless the market price of the
underlying asset is less than $35. As is the case with any long option position, the maximum loss
is the premium paid.
An agent must obtain written verification of an investor's net worth for which of the following
investments?
A) Direct participation programs
B) Unit investment trusts
C) Variable contracts
D) Real estate investment trusts correct answers A
DPPs require complete financial disclosure because of minimum suitability standards set by the
states in which they are sold. REITs, unit investment trusts, and variable contracts do not have
specific net worth suitability requirements for investors.
Jasper is considered an affiliated person of the Tahor Clean Energy Mutual Fund. Under the
Investment Company Act of 1940, Jasper is prohibited from all of the following except
A) being elected to the fund's board of directors.
B) selling stock to the fund for its portfolio.
C) buying securities from the fund's portfolio.
D) borrowing from the fund (money or property). correct answers A
There is no problem with an affiliated person being elected to the fund's board of directors.
Under the act, as many as 60% of the board members may be affiliated persons (the law states
that at least 40% must be noninterested parties). Affiliated persons may not have any dealings
with the investment company (outside of contractual obligations and the purchase or redemption
, of shares of the investment company), such as buying securities, furniture, real estate, or other
property from the company or selling such property to the company.
Which of the following securities of Synergy, Inc., an issuer whose stock trades on the Nasdaq
Stock Market, does not have an exemption from registration with the state?
A) Synergy, Inc., senior bonds
B) Synergy's oil and gas limited partnership units (Synergy, Inc., is the general partner)
C) Synergy, Inc., preferred stock
D) Synergy, Inc., debentures correct answers B
Synergy's oil and gas limited partnerships are not issued by Synergy, Inc.; Synergy is only the
general partner. The oil and gas partnerships are issued by separate legal entities; they do not
have the blue-sky exemptions. They must be registered in the states in which they are sold,
unless they have some other exemption. Any security equal or senior in claim to an exempted
common stock is exempted as well. The company's preferred stock, senior bonds, and debentures
all have blue-sky exemptions from state registration because the company's common stock is
traded on the Nasdaq Stock Market.
You have a 70-year-old client with a $500,000 whole life insurance policy purchased 25 years
ago. The policy currently has a cash value of approximately $150,000. With all of the children
on their own and successful, the client no longer feels the need for the insurance and asks you if
there is any option that might result in netting more than surrendering the policy for its cash
value. You might recommend
A) keeping the policy because the cash value will continue to grow.
B) canceling the policy but leaving the cash value with the insurance company with interest.
C) engaging in a life settlement.
D) using IRS Section 1035 to transfer the cash value into a deferred annuity. correct answers C
A life settlement involves selling an existing life insurance policy for an amount in excess of the
cash value but less than the death benefit. Exact numbers are hard to compute without knowing
all the details of the type of policy and health of the insured, but it would certainly be well above
the $150,000 cash value. If the question indicates a terminally ill individual, the answer would be
a viatical. An IRS Section 1035 transfer to an annuity will not put any additional cash in the
client's hands.
Which of the following is considered an advantage of annuitization?
A) Payments under a variable annuity could be reduced if there is a declining market.
B) It guarantees income that will last for the client's lifetime.
C) Once annuitized, the client's draw from the annuity is limited to the annuity payment.
D) A fixed, level periodic payment tends to lose buying power over time due to inflation. correct
answers B
