Series 65 Practice Exam #1 UPDATED
ACTUAL Exam Questions and CORRECT
Answers
In projecting future cash requirements, one of the tools is a capital needs analysis. When doing
one, all of the following would be considered capital needs except
A) rolling over a 401(k) into an IRA
B) a home equity loan with a $15,000 balance
C) a $100,000 loan for law school with a due date in 10 years
D) a $20,000 loan for undergraduate school with a due date in 6 years - CORRECT
ANSWER - A) rolling over a 401(k) into an IRA
A capital needs analysis attempts to determine money that would be needed in the event of an
individual's sudden passing. Included would be any outstanding debt obligations, regardless of
when they are due (they will have to be paid off sometime). However, an asset such as the 401(k)
is not a need; it is something that will help meet the need.
One of the prohibited practices under the Uniform Securities Act is market manipulation. Which
of the following are examples of a broker-dealer engaging in that practice?
I. Arbitrage
II. Churning
III. Matched orders
IV. Wash trades
A) I and IV
B) II and IV
C) III and IV
D) I and II - CORRECT ANSWER - C) III and IV
,(Matched orders, Wash trades)
Matched orders occur when one or more broker-dealers engage in buying and selling between
themselves for the purpose of creating the misleading appearance of increased activity in a
security. A wash trade is an attempt to manipulate a security's priceterm-52 by creating an
apparent interest in the security that really does not exist. Arbitrage is the simultaneous buying
and selling of the same security in different markets to take advantage of different prices. It is not
a form of market manipulation. Churning is a prohibited activity, but has nothing to do with the
market, just a client's account.
Doug runs a sole proprietorship IA & is also a registered agent with P. Securities, Inc., a
registered broker-dealer. Doug charges his clients an hourly fee for advice, and when they wish
to purchase recommended securities, they may do so through P. Securities if they have an
account there. In those circumstances, Doug earns a commission on the securities transaction in
addition to the hourly fee he earned while making that recommendation. Under the NASAA
Model Rule on Unethical Biz Practices of IAs, IARs, & Federal Covered Advisers,
A) this would be permitted if the compensation were disclosed to the client.
B) this would constitute a prohibited practice.
C) this would be acceptable if it were disclosed to the client and the IA fee was based on a % of
assets under management rather than an hourly basis.
D) the trade could only be placed through P. Securities if they were the market maker in the
recommended security. - CORRECT ANSWER - A) this would be permitted if the
compensation were disclosed to the client.
Investment advisers may charge fees on an hourly basis, as a percentage of assets under
management, or even as a flat annual fee. In addition, if licensed as agents of a broker-dealer,
they may also earn commissions on transactions routed through that broker-dealer. However,
disclosure to the client is required, and it must be made clear to the advisory client that
transactions may be executed at whatever broker-dealer the client chooses.
An advantage of being a bondholder compared with owning common stock in the same
corporation is that
A) the bondholder can select the optimum time to have the issuer redeem the bond.
B) common stock has priority over the bond in the event of liquidation.
C) income payments are more reliable.
,D) there is limited liability. - CORRECT ANSWER - C) income payments are more reliable.
Even though bond interest is semiannual, while dividends are typically paid quarterly, the
payment of interest is an obligation that comes ahead of the payment of any dividend.
Companies can elect to skip or reduce their dividends but not their interest payments.
Which of the following statements is true?
I. An agent may never be simultaneously employed by more than one broker-dealer.
II. An agent must submit separate registrations for each broker-dealer with which she is
registered.
III. Certain states prohibit agents from dual or multiple registration.
IV. An agent who sells securities in several states must be registered with different broker-
dealers in each state.
A) II, III, and IV
B) II and III
C) I only
D) IV only - CORRECT ANSWER - B) II and III
In general, an agent will only be registered with a single broker-dealer. However, the USA does
permit registration with more than one under certain conditions. An agent must submit separate
registrations for each broker-dealer with which she is registered, and an agent may be prevented
from multiple registration in those states that prohibit dual or multiple registration.
After receiving some money from an inheritance, an individual purchases a rare gold coin for
$10,000. Five years later, he gives the coin to his daughter-in-law after receiving an appraisal
showing the coin is worth $15,000. The daughter-in-law's cost basis of the coin is
A) $15,000.
B) $5,000.
C) $10,000.
D) $0.00. - CORRECT ANSWER - C) $10,000.
, When a gift is made of an asset, whether it be a security or a collectible, the donor's cost basis
passes to the donee. In this case, the original cost is $10,000 and that becomes the cost basis for
the daughter-in-law and is used to determine a gain or loss when that coin is sold. Do not confuse
this with the annual gift tax exclusion. Because the value of the gift did not exceed $16,000, the
donor has no gift tax obligation, but that is completely different from the daughter's cost basis.
Washington, Adams, and Jefferson, Inc., (WAJI) is an investment adviser whose principal and
only office is in Alexandria, VA. WAJI's sole business is advising institutional investors.
Rutherford Buchanan is employed by the firm in the main office and has the responsibility of
servicing the firm's bank and insurance company clients. Which of the following statements is
correct regarding Rutherford's licensing requirements?
A) Rutherford cannot register as an IAR of WAJI because providing advice exclusively to
institutions exempts the firm from registration.
B) Rutherford is exempt from registration because his only clients are institutions.
C) Rutherford must register as an IAR of WAJI with the State of Virginia.
D) Rutherford is exempt from registration because he has fewer than six retail clients. -
CORRECT ANSWER - C) Rutherford must register as an IAR of WAJI with the State of
Virginia.
Regardless of whom the clients are, Rutherford has a place of business in Virginia and that
requires registration with the Administrator as an IAR. If WAJI does business in other states
where it does not have a place of business, it is exempt from registration because the only clients
are institutions. If WAJI is not registered in the state, Rutherford can't register as their IAR. The
de minimis exemption for fewer than six retail clients only applies when there is no place of
business in the state.
An agent who carefully evaluates a client's risk tolerance, financial situation, and investment
objectives engages in an unethical practice when he
A) underestimates a company's interest rate risk as a result of cautious accounting practices
recently adopted by the company.
B) buys or sells securities with exceptionally high commissions or transaction costs.
C) automatically recommends securities that are highly regarded by other agents in the office.
D) fails to discuss a company's working capital position (because the client does not want to be
bothered by details) if the securities are fundamentally suitable for his portfolio. - CORRECT
ACTUAL Exam Questions and CORRECT
Answers
In projecting future cash requirements, one of the tools is a capital needs analysis. When doing
one, all of the following would be considered capital needs except
A) rolling over a 401(k) into an IRA
B) a home equity loan with a $15,000 balance
C) a $100,000 loan for law school with a due date in 10 years
D) a $20,000 loan for undergraduate school with a due date in 6 years - CORRECT
ANSWER - A) rolling over a 401(k) into an IRA
A capital needs analysis attempts to determine money that would be needed in the event of an
individual's sudden passing. Included would be any outstanding debt obligations, regardless of
when they are due (they will have to be paid off sometime). However, an asset such as the 401(k)
is not a need; it is something that will help meet the need.
One of the prohibited practices under the Uniform Securities Act is market manipulation. Which
of the following are examples of a broker-dealer engaging in that practice?
I. Arbitrage
II. Churning
III. Matched orders
IV. Wash trades
A) I and IV
B) II and IV
C) III and IV
D) I and II - CORRECT ANSWER - C) III and IV
,(Matched orders, Wash trades)
Matched orders occur when one or more broker-dealers engage in buying and selling between
themselves for the purpose of creating the misleading appearance of increased activity in a
security. A wash trade is an attempt to manipulate a security's priceterm-52 by creating an
apparent interest in the security that really does not exist. Arbitrage is the simultaneous buying
and selling of the same security in different markets to take advantage of different prices. It is not
a form of market manipulation. Churning is a prohibited activity, but has nothing to do with the
market, just a client's account.
Doug runs a sole proprietorship IA & is also a registered agent with P. Securities, Inc., a
registered broker-dealer. Doug charges his clients an hourly fee for advice, and when they wish
to purchase recommended securities, they may do so through P. Securities if they have an
account there. In those circumstances, Doug earns a commission on the securities transaction in
addition to the hourly fee he earned while making that recommendation. Under the NASAA
Model Rule on Unethical Biz Practices of IAs, IARs, & Federal Covered Advisers,
A) this would be permitted if the compensation were disclosed to the client.
B) this would constitute a prohibited practice.
C) this would be acceptable if it were disclosed to the client and the IA fee was based on a % of
assets under management rather than an hourly basis.
D) the trade could only be placed through P. Securities if they were the market maker in the
recommended security. - CORRECT ANSWER - A) this would be permitted if the
compensation were disclosed to the client.
Investment advisers may charge fees on an hourly basis, as a percentage of assets under
management, or even as a flat annual fee. In addition, if licensed as agents of a broker-dealer,
they may also earn commissions on transactions routed through that broker-dealer. However,
disclosure to the client is required, and it must be made clear to the advisory client that
transactions may be executed at whatever broker-dealer the client chooses.
An advantage of being a bondholder compared with owning common stock in the same
corporation is that
A) the bondholder can select the optimum time to have the issuer redeem the bond.
B) common stock has priority over the bond in the event of liquidation.
C) income payments are more reliable.
,D) there is limited liability. - CORRECT ANSWER - C) income payments are more reliable.
Even though bond interest is semiannual, while dividends are typically paid quarterly, the
payment of interest is an obligation that comes ahead of the payment of any dividend.
Companies can elect to skip or reduce their dividends but not their interest payments.
Which of the following statements is true?
I. An agent may never be simultaneously employed by more than one broker-dealer.
II. An agent must submit separate registrations for each broker-dealer with which she is
registered.
III. Certain states prohibit agents from dual or multiple registration.
IV. An agent who sells securities in several states must be registered with different broker-
dealers in each state.
A) II, III, and IV
B) II and III
C) I only
D) IV only - CORRECT ANSWER - B) II and III
In general, an agent will only be registered with a single broker-dealer. However, the USA does
permit registration with more than one under certain conditions. An agent must submit separate
registrations for each broker-dealer with which she is registered, and an agent may be prevented
from multiple registration in those states that prohibit dual or multiple registration.
After receiving some money from an inheritance, an individual purchases a rare gold coin for
$10,000. Five years later, he gives the coin to his daughter-in-law after receiving an appraisal
showing the coin is worth $15,000. The daughter-in-law's cost basis of the coin is
A) $15,000.
B) $5,000.
C) $10,000.
D) $0.00. - CORRECT ANSWER - C) $10,000.
, When a gift is made of an asset, whether it be a security or a collectible, the donor's cost basis
passes to the donee. In this case, the original cost is $10,000 and that becomes the cost basis for
the daughter-in-law and is used to determine a gain or loss when that coin is sold. Do not confuse
this with the annual gift tax exclusion. Because the value of the gift did not exceed $16,000, the
donor has no gift tax obligation, but that is completely different from the daughter's cost basis.
Washington, Adams, and Jefferson, Inc., (WAJI) is an investment adviser whose principal and
only office is in Alexandria, VA. WAJI's sole business is advising institutional investors.
Rutherford Buchanan is employed by the firm in the main office and has the responsibility of
servicing the firm's bank and insurance company clients. Which of the following statements is
correct regarding Rutherford's licensing requirements?
A) Rutherford cannot register as an IAR of WAJI because providing advice exclusively to
institutions exempts the firm from registration.
B) Rutherford is exempt from registration because his only clients are institutions.
C) Rutherford must register as an IAR of WAJI with the State of Virginia.
D) Rutherford is exempt from registration because he has fewer than six retail clients. -
CORRECT ANSWER - C) Rutherford must register as an IAR of WAJI with the State of
Virginia.
Regardless of whom the clients are, Rutherford has a place of business in Virginia and that
requires registration with the Administrator as an IAR. If WAJI does business in other states
where it does not have a place of business, it is exempt from registration because the only clients
are institutions. If WAJI is not registered in the state, Rutherford can't register as their IAR. The
de minimis exemption for fewer than six retail clients only applies when there is no place of
business in the state.
An agent who carefully evaluates a client's risk tolerance, financial situation, and investment
objectives engages in an unethical practice when he
A) underestimates a company's interest rate risk as a result of cautious accounting practices
recently adopted by the company.
B) buys or sells securities with exceptionally high commissions or transaction costs.
C) automatically recommends securities that are highly regarded by other agents in the office.
D) fails to discuss a company's working capital position (because the client does not want to be
bothered by details) if the securities are fundamentally suitable for his portfolio. - CORRECT
