Series 65 Exam UPDATED ACTUAL Exam
Questions and CORRECT Answers
Under the Uniform Securities Act, which of the following are defined as sales? - CORRECT
ANSWER - A sale is a contract or transaction for value. Therefore, when a security is
given as a bonus in connection with the sale of another security, it is also considered a sale.
Because an assessable stock may require a payment made by the recipient, the gift is considered
a sale. The gift of a non-assessable stock is not a sale as it is not a contract for value. An offering
of securities is not a transaction or sale of securities until the offer is accepted.
A broker-dealer is NOT considered an investment adviser if the: - CORRECT ANSWER -
Excluded from the definition of investment adviser are financial institutions, publishers,
investment adviser representatives, and certain professionals, including broker-dealers, whose
advice is incidental to their profession and who are not compensated for it.
Under the Investment Advisers Act of 1940, an adviser is required to be registered with the SEC
if: - CORRECT ANSWER - Advisers to registered investment companies are required to
be SEC-registered. Under the Advisers Act, as modified by the Dodd-Frank Act, advisers are
exempt from SEC registration if they manage less than $100 million in assets and have no
investment company clients. Persons are excluded from the Advisers Act definition of
investment adviser if they are publishers of news or business/financial publications of general
and regular circulation or if their advice relates solely to U.S. government securities.
According to North American Securities Administrators Association's (NASAA) Statement of
Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the
following practices is NOT unethical? - CORRECT ANSWER - The THREE A's: Action,
Amount, Asset
An agent of a broker-dealer may exercise discretion in deciding the time or the price at which a
sale takes place during the trading day without express written discretionary authority. Such
action is not unethical because time and price are not considered true discretion. An agent may
not exercise discretion over the number of shares to be sold without prior written discretionary
authority. Oral discretion is only permitted for investment advisers and their representatives,
(never broker-dealers or agents), during the first 10 business days after the initial discretionary
transaction in the account.
Reference: 2.11.5 in the License Exam Manual
,An investor in the 28% income tax bracket is considering purchasing either an 8% municipal
bond or a 10% corporate bond. Which of the following regarding the bonds is TRUE? -
CORRECT ANSWER - Investors are interested in their return after taxes (what they get to
keep). The 2 bonds must be compared on a tax-equivalent basis. For example, the tax-equivalent
yield of a municipal bond equals tax-free yield divided by 100% minus tax rate. The tax
equivalent rate in this case is .08 ÷ .72 (100% − 28%) = 11.11%. In other words, a client in the
28% tax bracket would have to invest in a taxable bond that yields 11.11% to get the same after-
tax return that the 8% tax-free bond offers.
Which of the following statements is TRUE about futures and forwards? - CORRECT
ANSWER - Futures contracts are traded on exchanges and, therefore, have standardized
terms. In forwards, the terms of each contract are separately negotiated.
Reference: 9.2.1 in the License Exam Manual
George and Martha Washington are both in their mid-70s, very active in their community, and
both work part-time at the local community bank. They would like to contribute a small portion
of their earnings to some form of retirement plan. Which of the following choices would be the
most appropriate for this couple? - CORRECT ANSWER - One of the distinguishing
characteristics of the Roth IRA is that contributions may be continued past age 70 ½ as long as
the participant has earned income.
Reference: 20.1.2.1 in the License Exam Manual
An employee is offered a non-qualified stock option with an exercise price of $20 per share. If
the option is exercised when the current market value of the stock is $30, the employee: -
CORRECT ANSWER - In the case of NSOs, the difference between the exercise (or
strike) price and the current market value is considered salary to the employee.
Reference: 4.1.8 in the License Exam Manual
MaryBeth is an agent with QuickTrade Securities, a subsidiary of QuickLoan Bankcorp, a
holding company that also owns QuickIssue Capital Markets, an underwriter specializing in
bringing new issues to market. Under the NASAA Statement of Policy on Dishonest or
Unethical Business Practices of Broker-Dealers and Agents, MaryBeth would be permitted to
split commissions resulting from securities transactions with any of the following individuals
EXCEPT - CORRECT ANSWER - Under the NASAA Policy, in order to split
commissions, both individuals must be licensed as agents with either the same broker-dealer, or
,ones under common control (ownership). What about sharing with your principal? Why not? In
fact, many managers (principals) have commission overrides as a fundamental part of their
compensation package. Remember, as we state in your License Exam Manual, under the
Uniform Securities Act, there is no separate principal registration as there is with FINRA; all
principals are registered as agents (or IARs as the case may be), just the same as you.
Reference: 2.11.26.4 in the License Exam Manual
Among the differences between C corporations and S corporations is: - CORRECT
ANSWER - Unlike C corporations, there is a limit placed on the number of shareholders in
an S corp. At the time of this printing, that maximum is 100, none of whom may be a non-
resident alien (C corps have no residency restrictions). The primary practical difference is the
fact that S corporation earnings (and losses) flow through to the shareholders, whereas C
corporation earnings are only received by shareholders when dividends are paid.
Reference: 14.3.6 in the License Exam Manual
Under the Uniform Securities Act, an investment adviser who has custody of client securities or
funds must do which of the following? - CORRECT ANSWER - The adviser must send
clients quarterly, itemized statements listing the funds and securities in the adviser's custody at
the end of the period and all transactions during the period. Unless using a qualified custodian,
the adviser must deposit client funds into one or more bank accounts, not commingled with
adviser funds, and notify the clients in writing of where and in what manner the funds are held.
The adviser must also arrange for an annual, surprise audit by an independent public accountant
of client funds and securities. The adviser must notify the Administrator that the adviser has or
may have custody of client securities or funds.
Reference: 3.11 in the License Exam Manual
If the return on Treasury bills is 3% and the equity risk premium is 4%, the expected equity
returns should be: - CORRECT ANSWER - The expected return on an equity investment
is the risk-free (for example, T-bill) rate of return added to the equity risk premium (3% + 4% =
7%).
Reference: 19.2.7.1 in the License Exam Manual
An analyst is viewing a subject company's financial statements. She notices that the company has
current assets of $20 million, fixed assets of $50 million, and total liabilities of $45 million (of
which $10 million is considered long-term). This company's debt to equity ratio is - CORRECT
ANSWER - The debt to equity ratio is computed by dividing the issuer's long-term debt by
, their total capitalization. Total capitalization is the company's net worth (assets minus liabilities)
plus the long-term debt. In this example, the net worth is $70 million minus $45 million, or $25
million. Adding the long-term debt of $10 million results in total capital of $35 million. Divide
the $10 million by that $35 million to arrive at 28.57%. As we point out in the LEM, this is
really a misnomer—it should be called the debt to total capital ratio, but probably will not shown
that way on the exam.
Reference: 11.4.1.5 in the License Exam Manual
Angela, a wealthy client of yours, has a constructed her portfolio with individual common stocks
that closely match the weighting of the S&P 500 index. In so doing, Angela has significantly
reduced her (what type of risk)? - CORRECT ANSWER - By matching the composition of
the S&P 500 index, the client has broadly diversified her portfolio. One of the primary benefits
of diversification is the reduction of business risk, an unsystematic risk. Market risk, one of the
systematic risks, is not reduced through diversification. Default (or credit) risk, would apply
when the portfolio contains debt securities.
Reference: 13.2.2 in the License Exam Manual
The measurement that compares a stock's price history to the movement of a total market index
for the same period is known as: - CORRECT ANSWER - The measurement that
compares a stock's price history to the movement of the total market index for the same period is
beta. Standard deviation indicates how much an investment's returns have fluctuated from its
average returns over a period of time, while R-squared measures whether an investment's returns
tend to go up and down at the same time as the markets. Duration measures how sensitive a bond
will be to small changes in interest rates.
Reference: 12.2.4 in the License Exam Manual
Under the Securities Act of 1933, when registering securities with the SEC, who must sign the
registration statement?
The chief executive officer (CEO).
The chief operating officer (COO).
A majority of the board.
The chief financial officer (CFO). - CORRECT ANSWER - The principal executives of
the company involved with money and a majority of the board of directors are required to sign
the registration statement attesting to the facts presented as being true to the best of their
Questions and CORRECT Answers
Under the Uniform Securities Act, which of the following are defined as sales? - CORRECT
ANSWER - A sale is a contract or transaction for value. Therefore, when a security is
given as a bonus in connection with the sale of another security, it is also considered a sale.
Because an assessable stock may require a payment made by the recipient, the gift is considered
a sale. The gift of a non-assessable stock is not a sale as it is not a contract for value. An offering
of securities is not a transaction or sale of securities until the offer is accepted.
A broker-dealer is NOT considered an investment adviser if the: - CORRECT ANSWER -
Excluded from the definition of investment adviser are financial institutions, publishers,
investment adviser representatives, and certain professionals, including broker-dealers, whose
advice is incidental to their profession and who are not compensated for it.
Under the Investment Advisers Act of 1940, an adviser is required to be registered with the SEC
if: - CORRECT ANSWER - Advisers to registered investment companies are required to
be SEC-registered. Under the Advisers Act, as modified by the Dodd-Frank Act, advisers are
exempt from SEC registration if they manage less than $100 million in assets and have no
investment company clients. Persons are excluded from the Advisers Act definition of
investment adviser if they are publishers of news or business/financial publications of general
and regular circulation or if their advice relates solely to U.S. government securities.
According to North American Securities Administrators Association's (NASAA) Statement of
Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the
following practices is NOT unethical? - CORRECT ANSWER - The THREE A's: Action,
Amount, Asset
An agent of a broker-dealer may exercise discretion in deciding the time or the price at which a
sale takes place during the trading day without express written discretionary authority. Such
action is not unethical because time and price are not considered true discretion. An agent may
not exercise discretion over the number of shares to be sold without prior written discretionary
authority. Oral discretion is only permitted for investment advisers and their representatives,
(never broker-dealers or agents), during the first 10 business days after the initial discretionary
transaction in the account.
Reference: 2.11.5 in the License Exam Manual
,An investor in the 28% income tax bracket is considering purchasing either an 8% municipal
bond or a 10% corporate bond. Which of the following regarding the bonds is TRUE? -
CORRECT ANSWER - Investors are interested in their return after taxes (what they get to
keep). The 2 bonds must be compared on a tax-equivalent basis. For example, the tax-equivalent
yield of a municipal bond equals tax-free yield divided by 100% minus tax rate. The tax
equivalent rate in this case is .08 ÷ .72 (100% − 28%) = 11.11%. In other words, a client in the
28% tax bracket would have to invest in a taxable bond that yields 11.11% to get the same after-
tax return that the 8% tax-free bond offers.
Which of the following statements is TRUE about futures and forwards? - CORRECT
ANSWER - Futures contracts are traded on exchanges and, therefore, have standardized
terms. In forwards, the terms of each contract are separately negotiated.
Reference: 9.2.1 in the License Exam Manual
George and Martha Washington are both in their mid-70s, very active in their community, and
both work part-time at the local community bank. They would like to contribute a small portion
of their earnings to some form of retirement plan. Which of the following choices would be the
most appropriate for this couple? - CORRECT ANSWER - One of the distinguishing
characteristics of the Roth IRA is that contributions may be continued past age 70 ½ as long as
the participant has earned income.
Reference: 20.1.2.1 in the License Exam Manual
An employee is offered a non-qualified stock option with an exercise price of $20 per share. If
the option is exercised when the current market value of the stock is $30, the employee: -
CORRECT ANSWER - In the case of NSOs, the difference between the exercise (or
strike) price and the current market value is considered salary to the employee.
Reference: 4.1.8 in the License Exam Manual
MaryBeth is an agent with QuickTrade Securities, a subsidiary of QuickLoan Bankcorp, a
holding company that also owns QuickIssue Capital Markets, an underwriter specializing in
bringing new issues to market. Under the NASAA Statement of Policy on Dishonest or
Unethical Business Practices of Broker-Dealers and Agents, MaryBeth would be permitted to
split commissions resulting from securities transactions with any of the following individuals
EXCEPT - CORRECT ANSWER - Under the NASAA Policy, in order to split
commissions, both individuals must be licensed as agents with either the same broker-dealer, or
,ones under common control (ownership). What about sharing with your principal? Why not? In
fact, many managers (principals) have commission overrides as a fundamental part of their
compensation package. Remember, as we state in your License Exam Manual, under the
Uniform Securities Act, there is no separate principal registration as there is with FINRA; all
principals are registered as agents (or IARs as the case may be), just the same as you.
Reference: 2.11.26.4 in the License Exam Manual
Among the differences between C corporations and S corporations is: - CORRECT
ANSWER - Unlike C corporations, there is a limit placed on the number of shareholders in
an S corp. At the time of this printing, that maximum is 100, none of whom may be a non-
resident alien (C corps have no residency restrictions). The primary practical difference is the
fact that S corporation earnings (and losses) flow through to the shareholders, whereas C
corporation earnings are only received by shareholders when dividends are paid.
Reference: 14.3.6 in the License Exam Manual
Under the Uniform Securities Act, an investment adviser who has custody of client securities or
funds must do which of the following? - CORRECT ANSWER - The adviser must send
clients quarterly, itemized statements listing the funds and securities in the adviser's custody at
the end of the period and all transactions during the period. Unless using a qualified custodian,
the adviser must deposit client funds into one or more bank accounts, not commingled with
adviser funds, and notify the clients in writing of where and in what manner the funds are held.
The adviser must also arrange for an annual, surprise audit by an independent public accountant
of client funds and securities. The adviser must notify the Administrator that the adviser has or
may have custody of client securities or funds.
Reference: 3.11 in the License Exam Manual
If the return on Treasury bills is 3% and the equity risk premium is 4%, the expected equity
returns should be: - CORRECT ANSWER - The expected return on an equity investment
is the risk-free (for example, T-bill) rate of return added to the equity risk premium (3% + 4% =
7%).
Reference: 19.2.7.1 in the License Exam Manual
An analyst is viewing a subject company's financial statements. She notices that the company has
current assets of $20 million, fixed assets of $50 million, and total liabilities of $45 million (of
which $10 million is considered long-term). This company's debt to equity ratio is - CORRECT
ANSWER - The debt to equity ratio is computed by dividing the issuer's long-term debt by
, their total capitalization. Total capitalization is the company's net worth (assets minus liabilities)
plus the long-term debt. In this example, the net worth is $70 million minus $45 million, or $25
million. Adding the long-term debt of $10 million results in total capital of $35 million. Divide
the $10 million by that $35 million to arrive at 28.57%. As we point out in the LEM, this is
really a misnomer—it should be called the debt to total capital ratio, but probably will not shown
that way on the exam.
Reference: 11.4.1.5 in the License Exam Manual
Angela, a wealthy client of yours, has a constructed her portfolio with individual common stocks
that closely match the weighting of the S&P 500 index. In so doing, Angela has significantly
reduced her (what type of risk)? - CORRECT ANSWER - By matching the composition of
the S&P 500 index, the client has broadly diversified her portfolio. One of the primary benefits
of diversification is the reduction of business risk, an unsystematic risk. Market risk, one of the
systematic risks, is not reduced through diversification. Default (or credit) risk, would apply
when the portfolio contains debt securities.
Reference: 13.2.2 in the License Exam Manual
The measurement that compares a stock's price history to the movement of a total market index
for the same period is known as: - CORRECT ANSWER - The measurement that
compares a stock's price history to the movement of the total market index for the same period is
beta. Standard deviation indicates how much an investment's returns have fluctuated from its
average returns over a period of time, while R-squared measures whether an investment's returns
tend to go up and down at the same time as the markets. Duration measures how sensitive a bond
will be to small changes in interest rates.
Reference: 12.2.4 in the License Exam Manual
Under the Securities Act of 1933, when registering securities with the SEC, who must sign the
registration statement?
The chief executive officer (CEO).
The chief operating officer (COO).
A majority of the board.
The chief financial officer (CFO). - CORRECT ANSWER - The principal executives of
the company involved with money and a majority of the board of directors are required to sign
the registration statement attesting to the facts presented as being true to the best of their
