SERIES 66 LATEST 2026 TEST PAPER QUESTIONS AND
SOLUTIONS RATED A+
✔✔Prospectus - ✔✔A prospectus is any communication that offers a security for sale,
including newspaper, radio, and television offers. Tombstone announcements are
excluded from the definition. Also excluded are oral offers, discussions between an
agent and a customer, and individual telephone solicitations. However, written
communications to a customer may be considered a prospectus, in which case full
disclosure of information must be included to avoid fraud charges. Tombstone
advertisements are limited to identifying the issuer, price, amount, and type of security
offered and where a prospectus and the security may be obtained.
✔✔Orders and Exempt Transactions - ✔✔Unsolicited orders, regardless of the nature of
the security, are always exempt transactions. Transactions by a fiduciary (other than the
custodian in a minor's account) are always exempt transactions. In order for the sale to
the pension fund to qualify, the fund must have assets of no less than $1 million.
✔✔An agent has a new client who is prone to tergiversation. As such, it would probably
make sense to - ✔✔Accept solicited orders only.
Those who tergiversate repeatedly change their attitude or opinions. As a consequence,
the client who likes an agent's recommendation one day may quickly change his mind
the next. Therefore, the agent could be placed in an untenable position, being unable to
satisfy the client. To avoid this possibility, it would be most sensible to leave all the
decisions to the client and only accept unsolicited orders.
✔✔If a licensed agent believed that interest rates were about to fall and contacts all of
her clients and suggests they purchase high quality debt securities with long-term
maturities, this action: - ✔✔Has probably violated the Uniform Securities Act's suitability
standards.
If interest rates fall as the agent guesses, debt securities with long-term maturities will
increase in price. However, the agent is at fault for making the same recommendation to
all of her clients, as the same product cannot be suitable for everyone. This may be
referred to as a blanket recommendation on the exam. Even U.S. Treasury bonds, with
the highest degree of safety available, are not always suitable based upon the specific
objectives of the investor.
✔✔Risks - ✔✔Opportunity cost is the opportunity given up when an economic decision
is made. In the investment field, it generally refers to the risks taken versus keeping
money in a risk-free investment such as the 90-day Treasury bill. When one invests in
common stock, there is no credit risk because there is no credit - stock is equity, not a
debt.
✔✔An investor has a portfolio diversified among many different asset classes. If there
was an immediate need for cash, which of the following would probably be the most
liquid? - ✔✔Money market funds generally come with a check-writing privilege offering
,investors the opportunity to convert the asset to cash at once. Although all mutual funds
are readily redeemable, under the Investment Company Act of 1940, the fund has
seven days to redeem. One must request the cash value from the insurance company.
✔✔Separate account options - ✔✔Some variable annuity separate accounts have 50 or
more sub-accounts to choose from. There are no guarantees as far as the amount of
payout.
✔✔A TIPS bond is issued in the principal amount of $1,000, paying 3.5%. Over the
security's 5-year term, the inflation rate is 4%. What is the amount of the final
semiannual interest check? - ✔✔The semiannual interest of a TIPS bond is computed
on the basis of the inflation-adjusted principal. Because the principal increases with the
inflation rate, at the end of the 5-year term, it has grown to $1,219 ($1,000 × 102% ten
times). Therefore, the final interest check is for $1,219 × 1.75% (remember it is a
semiannual check).
✔✔Preferred stock and rates - ✔✔Preferred stock is interest rate sensitive. As rates fall,
prices of preferred stocks tend to rise, and vice versa.
✔✔Leverage - ✔✔Leverage is the use of borrowed money. This is reflected in a
company's debt to equity ratio. Of these choices, the only one that is borrowed money is
the bonds.
✔✔Standard Deviation - ✔✔Standard deviation measures security's volatility versus its
own historical performance. Two-thirds of the time, a stock can be expected to generate
a return within one standard deviation; 95% of the time, within two.
✔✔Internal Rate of Return - ✔✔IRR is the rate of interest that equates the initial
investment with the present value of future cash flows; it is the rate of return that results
in an investment having a net present value of zero. It is possible, although difficult, to
calculate IRR for investments with uneven cash flows. That is why it is used primarily
with debt securities and common stocks with stable dividends.
✔✔Coefficients - ✔✔The correlation coefficient ranges from -1.0 to +1.0 and measures
the varying relationship of assets (or securities) to one another. A correlation close to
+1.0 would indicate that the assets should move in tandem. A correlation close to 0
would indicate that the assets would have little relationship to one another, and a
correlation of -1.0 would indicate that the assets should exhibit virtually opposite
behavior.
✔✔Bond rating - ✔✔A bond's rating takes into consideration all factors, including
collateral and tax base. The higher the rating, the lower the credit risk.
✔✔arithmetic mean - ✔✔When a true average return is shown, that is the arithmetic
mean. The median return (the number in the middle of the group of five) is 10%.
, ✔✔Net Present Value - ✔✔Under the net present value (NPV) approach, an investment
is acceptable only if the present value of the expected returns is greater than the
amount of the investment outlay. In other words, an investment is acceptable if the net
present value is greater than zero.
✔✔Fixed Income Securities risk - ✔✔One of the characteristics of all fixed income
securities is that the income never changes (fixed) so when interest rates change, the
income of those securities can't follow along. Therefore, one risk common to all fixed
income securities is interest rate risk.
✔✔Market Measurements - ✔✔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.
✔✔Market risk of a particular stock - ✔✔The earning power of the company is not a
measurement of the stock market (market risk), while the other factors here are. That is
a fundamental strength and protects against business or financial risk. Because market
risk is a systematic risk, some of the ways to protect yourself are by being able to hold
the security for a long period of time (long time horizon) or by timing your purchase
when the market is at or near a bottom. Obviously, stocks whose trading pattern
indicates wide fluctuations in market price are going to have greater market risk so
staying away from them will reduce the overall market risk of the portfolio.
✔✔Rule of 72 - ✔✔The rule of 72 is a shortcut for determining the required rate of
earnings required for a specific investment to double within a specified unit of time. In
this case, the investment has quadrupled, or doubled twice. Therefore, we compute the
rate for the investment to double in 4 years, 2 times; 72 divided by 4 years is 18%.
✔✔Form 8-k - ✔✔The Form 8-K is used to report significant events that could affect the
price of the company's stock. The SEC does not consider a relocation of a subsidiary to
be of significant magnitude.
✔✔YTM bonds - ✔✔Yield to maturity reflects the internal rate of return on a bond.
Internal rate of return (IRR) equates the cost of an investment to the cash flows
produced by that investment.
✔✔Insurance trusts - ✔✔As with all life insurance, the proceeds are available almost
immediately upon death providing estate liquidity. When done properly, the proceeds of
the policy are not included in the deceased's estate thereby saving estate taxes. The
trust is irrevocable - no changes can be made, and this is one of the few disadvantages.
SOLUTIONS RATED A+
✔✔Prospectus - ✔✔A prospectus is any communication that offers a security for sale,
including newspaper, radio, and television offers. Tombstone announcements are
excluded from the definition. Also excluded are oral offers, discussions between an
agent and a customer, and individual telephone solicitations. However, written
communications to a customer may be considered a prospectus, in which case full
disclosure of information must be included to avoid fraud charges. Tombstone
advertisements are limited to identifying the issuer, price, amount, and type of security
offered and where a prospectus and the security may be obtained.
✔✔Orders and Exempt Transactions - ✔✔Unsolicited orders, regardless of the nature of
the security, are always exempt transactions. Transactions by a fiduciary (other than the
custodian in a minor's account) are always exempt transactions. In order for the sale to
the pension fund to qualify, the fund must have assets of no less than $1 million.
✔✔An agent has a new client who is prone to tergiversation. As such, it would probably
make sense to - ✔✔Accept solicited orders only.
Those who tergiversate repeatedly change their attitude or opinions. As a consequence,
the client who likes an agent's recommendation one day may quickly change his mind
the next. Therefore, the agent could be placed in an untenable position, being unable to
satisfy the client. To avoid this possibility, it would be most sensible to leave all the
decisions to the client and only accept unsolicited orders.
✔✔If a licensed agent believed that interest rates were about to fall and contacts all of
her clients and suggests they purchase high quality debt securities with long-term
maturities, this action: - ✔✔Has probably violated the Uniform Securities Act's suitability
standards.
If interest rates fall as the agent guesses, debt securities with long-term maturities will
increase in price. However, the agent is at fault for making the same recommendation to
all of her clients, as the same product cannot be suitable for everyone. This may be
referred to as a blanket recommendation on the exam. Even U.S. Treasury bonds, with
the highest degree of safety available, are not always suitable based upon the specific
objectives of the investor.
✔✔Risks - ✔✔Opportunity cost is the opportunity given up when an economic decision
is made. In the investment field, it generally refers to the risks taken versus keeping
money in a risk-free investment such as the 90-day Treasury bill. When one invests in
common stock, there is no credit risk because there is no credit - stock is equity, not a
debt.
✔✔An investor has a portfolio diversified among many different asset classes. If there
was an immediate need for cash, which of the following would probably be the most
liquid? - ✔✔Money market funds generally come with a check-writing privilege offering
,investors the opportunity to convert the asset to cash at once. Although all mutual funds
are readily redeemable, under the Investment Company Act of 1940, the fund has
seven days to redeem. One must request the cash value from the insurance company.
✔✔Separate account options - ✔✔Some variable annuity separate accounts have 50 or
more sub-accounts to choose from. There are no guarantees as far as the amount of
payout.
✔✔A TIPS bond is issued in the principal amount of $1,000, paying 3.5%. Over the
security's 5-year term, the inflation rate is 4%. What is the amount of the final
semiannual interest check? - ✔✔The semiannual interest of a TIPS bond is computed
on the basis of the inflation-adjusted principal. Because the principal increases with the
inflation rate, at the end of the 5-year term, it has grown to $1,219 ($1,000 × 102% ten
times). Therefore, the final interest check is for $1,219 × 1.75% (remember it is a
semiannual check).
✔✔Preferred stock and rates - ✔✔Preferred stock is interest rate sensitive. As rates fall,
prices of preferred stocks tend to rise, and vice versa.
✔✔Leverage - ✔✔Leverage is the use of borrowed money. This is reflected in a
company's debt to equity ratio. Of these choices, the only one that is borrowed money is
the bonds.
✔✔Standard Deviation - ✔✔Standard deviation measures security's volatility versus its
own historical performance. Two-thirds of the time, a stock can be expected to generate
a return within one standard deviation; 95% of the time, within two.
✔✔Internal Rate of Return - ✔✔IRR is the rate of interest that equates the initial
investment with the present value of future cash flows; it is the rate of return that results
in an investment having a net present value of zero. It is possible, although difficult, to
calculate IRR for investments with uneven cash flows. That is why it is used primarily
with debt securities and common stocks with stable dividends.
✔✔Coefficients - ✔✔The correlation coefficient ranges from -1.0 to +1.0 and measures
the varying relationship of assets (or securities) to one another. A correlation close to
+1.0 would indicate that the assets should move in tandem. A correlation close to 0
would indicate that the assets would have little relationship to one another, and a
correlation of -1.0 would indicate that the assets should exhibit virtually opposite
behavior.
✔✔Bond rating - ✔✔A bond's rating takes into consideration all factors, including
collateral and tax base. The higher the rating, the lower the credit risk.
✔✔arithmetic mean - ✔✔When a true average return is shown, that is the arithmetic
mean. The median return (the number in the middle of the group of five) is 10%.
, ✔✔Net Present Value - ✔✔Under the net present value (NPV) approach, an investment
is acceptable only if the present value of the expected returns is greater than the
amount of the investment outlay. In other words, an investment is acceptable if the net
present value is greater than zero.
✔✔Fixed Income Securities risk - ✔✔One of the characteristics of all fixed income
securities is that the income never changes (fixed) so when interest rates change, the
income of those securities can't follow along. Therefore, one risk common to all fixed
income securities is interest rate risk.
✔✔Market Measurements - ✔✔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.
✔✔Market risk of a particular stock - ✔✔The earning power of the company is not a
measurement of the stock market (market risk), while the other factors here are. That is
a fundamental strength and protects against business or financial risk. Because market
risk is a systematic risk, some of the ways to protect yourself are by being able to hold
the security for a long period of time (long time horizon) or by timing your purchase
when the market is at or near a bottom. Obviously, stocks whose trading pattern
indicates wide fluctuations in market price are going to have greater market risk so
staying away from them will reduce the overall market risk of the portfolio.
✔✔Rule of 72 - ✔✔The rule of 72 is a shortcut for determining the required rate of
earnings required for a specific investment to double within a specified unit of time. In
this case, the investment has quadrupled, or doubled twice. Therefore, we compute the
rate for the investment to double in 4 years, 2 times; 72 divided by 4 years is 18%.
✔✔Form 8-k - ✔✔The Form 8-K is used to report significant events that could affect the
price of the company's stock. The SEC does not consider a relocation of a subsidiary to
be of significant magnitude.
✔✔YTM bonds - ✔✔Yield to maturity reflects the internal rate of return on a bond.
Internal rate of return (IRR) equates the cost of an investment to the cash flows
produced by that investment.
✔✔Insurance trusts - ✔✔As with all life insurance, the proceeds are available almost
immediately upon death providing estate liquidity. When done properly, the proceeds of
the policy are not included in the deceased's estate thereby saving estate taxes. The
trust is irrevocable - no changes can be made, and this is one of the few disadvantages.
