Series 66 Exam Prep 2026 Updated Practice
Questions, Comprehensive Securities and Investment
Adviser Review, Detailed Explanations, Verified
Answers & Success Workbook
SECTION I: ECONOMIC FACTORS AND BUSINESS INFORMATION
(8%) — Questions 1–8
Question 1
Which of the following economic indicators is classified as a leading indicator?
A. Gross Domestic Product (GDP)
B. Unemployment rate
C. Building permits issued
D. Consumer Price Index (CPI)
Correct Answer: C
Rationale: Building permits issued is a leading indicator because it predicts future
economic activity — more building permits suggest future construction and
economic growth. GDP (A) is a coincident indicator. Unemployment rate (B) is a
lagging indicator. CPI (D) is a lagging indicator.
Question 2
The federal funds rate is the rate at which:
A. Banks lend to their best corporate customers
B. Banks lend to each other overnight
C. The Federal Reserve lends to banks
D. The U.S. Treasury borrows money
Correct Answer: B
Rationale: The federal funds rate is the interest rate at which depository
institutions (banks) lend reserve balances to other banks overnight on an
uncollateralized basis. The prime rate (A) is what banks charge their best
,customers. The discount rate (C) is what the Federal Reserve charges banks.
Treasury rates (D) are for government borrowing.
Question 3
A company reports the following on its balance sheet:
• Current assets: $500,000
• Current liabilities: $300,000
• Inventory: $100,000
• Prepaid expenses: $50,000
What is the company's quick (acid-test) ratio?
A. 1.67
B. 1.33
C. 1.17
D. 1.50
Correct Answer: C
Rationale: Quick ratio = (Current assets - Inventory - Prepaid expenses) / Current
liabilities = ($500,000 - $100,000 - $50,000) / $300,000 = $350,000 / $300,000
= 1.17. The quick ratio measures a company's ability to meet short-term
obligations using its most liquid assets.
Question 4
During a period of inflation, which of the following is MOST likely to occur?
A. Fixed-income investments increase in value
B. The purchasing power of money decreases
C. Interest rates decrease
D. The value of the dollar increases
Correct Answer: B
Rationale: Inflation is a sustained increase in the general price level, which causes
the purchasing power of money to decrease. Fixed-income investments typically
,decrease in value (A) as interest rates rise. Interest rates generally increase during
inflation (C). The value of the dollar decreases, not increases (D).
Question 5
Which of the following is a measure of systematic risk?
A. Beta
B. Standard deviation
C. Alpha
D. Sharpe ratio
Correct Answer: A
Rationale: Beta measures systematic (market) risk — the risk inherent in the
overall market that cannot be diversified away. Standard deviation (B) measures
total risk (systematic + unsystematic). Alpha (C) measures risk-adjusted
performance. Sharpe ratio (D) measures return per unit of risk.
Question 6
A company has the following financial information:
• Net income: $200,000
• Total assets: $1,000,000
• Total equity: $500,000
What is the company's return on equity (ROE) ?
A. 20%
B. 40%
C. 10%
D. 50%
Correct Answer: B
Rationale: ROE = Net income / Shareholders' equity = $200,000 / $500,000
= 40%. ROE measures how efficiently a company uses shareholders' equity to
generate profit.
, Question 7
The yield curve is a graphical representation of the relationship between:
A. Bond prices and interest rates
B. Bond yields and time to maturity
C. Stock prices and earnings
D. Inflation and unemployment
Correct Answer: B
Rationale: The yield curve plots bond yields (interest rates) against time to
maturity for bonds of similar credit quality. A normal upward-sloping yield curve
indicates longer-term bonds have higher yields. Bond prices and interest rates (A)
have an inverse relationship but are not the yield curve.
Question 8
A company has a debt-to-equity ratio of 2.0. This means:
A. The company has $2 of debt for every $1 of equity
B. The company has $2 of equity for every $1 of debt
C. The company has no debt
D. The company is highly liquid
Correct Answer: A
Rationale: Debt-to-equity ratio = Total liabilities / Shareholders' equity. A ratio of
2.0 means the company has $2 of debt for every $1 of equity, indicating significant
leverage. This is a solvency measure, not a liquidity measure (D).
SECTION II: INVESTMENT VEHICLE CHARACTERISTICS (17%) —
Questions 9–25
Question 9
A mutual fund has a net asset value (NAV) of $10.00 and a sales charge of 5%.
What is the public offering price (POP) ?
Questions, Comprehensive Securities and Investment
Adviser Review, Detailed Explanations, Verified
Answers & Success Workbook
SECTION I: ECONOMIC FACTORS AND BUSINESS INFORMATION
(8%) — Questions 1–8
Question 1
Which of the following economic indicators is classified as a leading indicator?
A. Gross Domestic Product (GDP)
B. Unemployment rate
C. Building permits issued
D. Consumer Price Index (CPI)
Correct Answer: C
Rationale: Building permits issued is a leading indicator because it predicts future
economic activity — more building permits suggest future construction and
economic growth. GDP (A) is a coincident indicator. Unemployment rate (B) is a
lagging indicator. CPI (D) is a lagging indicator.
Question 2
The federal funds rate is the rate at which:
A. Banks lend to their best corporate customers
B. Banks lend to each other overnight
C. The Federal Reserve lends to banks
D. The U.S. Treasury borrows money
Correct Answer: B
Rationale: The federal funds rate is the interest rate at which depository
institutions (banks) lend reserve balances to other banks overnight on an
uncollateralized basis. The prime rate (A) is what banks charge their best
,customers. The discount rate (C) is what the Federal Reserve charges banks.
Treasury rates (D) are for government borrowing.
Question 3
A company reports the following on its balance sheet:
• Current assets: $500,000
• Current liabilities: $300,000
• Inventory: $100,000
• Prepaid expenses: $50,000
What is the company's quick (acid-test) ratio?
A. 1.67
B. 1.33
C. 1.17
D. 1.50
Correct Answer: C
Rationale: Quick ratio = (Current assets - Inventory - Prepaid expenses) / Current
liabilities = ($500,000 - $100,000 - $50,000) / $300,000 = $350,000 / $300,000
= 1.17. The quick ratio measures a company's ability to meet short-term
obligations using its most liquid assets.
Question 4
During a period of inflation, which of the following is MOST likely to occur?
A. Fixed-income investments increase in value
B. The purchasing power of money decreases
C. Interest rates decrease
D. The value of the dollar increases
Correct Answer: B
Rationale: Inflation is a sustained increase in the general price level, which causes
the purchasing power of money to decrease. Fixed-income investments typically
,decrease in value (A) as interest rates rise. Interest rates generally increase during
inflation (C). The value of the dollar decreases, not increases (D).
Question 5
Which of the following is a measure of systematic risk?
A. Beta
B. Standard deviation
C. Alpha
D. Sharpe ratio
Correct Answer: A
Rationale: Beta measures systematic (market) risk — the risk inherent in the
overall market that cannot be diversified away. Standard deviation (B) measures
total risk (systematic + unsystematic). Alpha (C) measures risk-adjusted
performance. Sharpe ratio (D) measures return per unit of risk.
Question 6
A company has the following financial information:
• Net income: $200,000
• Total assets: $1,000,000
• Total equity: $500,000
What is the company's return on equity (ROE) ?
A. 20%
B. 40%
C. 10%
D. 50%
Correct Answer: B
Rationale: ROE = Net income / Shareholders' equity = $200,000 / $500,000
= 40%. ROE measures how efficiently a company uses shareholders' equity to
generate profit.
, Question 7
The yield curve is a graphical representation of the relationship between:
A. Bond prices and interest rates
B. Bond yields and time to maturity
C. Stock prices and earnings
D. Inflation and unemployment
Correct Answer: B
Rationale: The yield curve plots bond yields (interest rates) against time to
maturity for bonds of similar credit quality. A normal upward-sloping yield curve
indicates longer-term bonds have higher yields. Bond prices and interest rates (A)
have an inverse relationship but are not the yield curve.
Question 8
A company has a debt-to-equity ratio of 2.0. This means:
A. The company has $2 of debt for every $1 of equity
B. The company has $2 of equity for every $1 of debt
C. The company has no debt
D. The company is highly liquid
Correct Answer: A
Rationale: Debt-to-equity ratio = Total liabilities / Shareholders' equity. A ratio of
2.0 means the company has $2 of debt for every $1 of equity, indicating significant
leverage. This is a solvency measure, not a liquidity measure (D).
SECTION II: INVESTMENT VEHICLE CHARACTERISTICS (17%) —
Questions 9–25
Question 9
A mutual fund has a net asset value (NAV) of $10.00 and a sales charge of 5%.
What is the public offering price (POP) ?
