Series 65: Investment Vehicle
Characteristics Exam 2025 Questions
and Answers
Define restricted stock, and discuss the limitations placed thereon. - ANSWER✔✔-
Restricted stock is stock that is held in a company that was not offered as part of an
initial public offering. It is considered restricted because the company and equity issue
has not gone through the vetting process as required by the Securities Exchange
Commission. It is illegal to sell it to another investor without taking the proper steps to
inform the SEC of the sell and complying with the regulations.
Define warrant as related to the securities industry, and describe its usefulness to
investors. - ANSWER✔✔-warrants are derivative securities that allow the investor to
buy securities directly from the issuer at a given price within a defined period of time.
Investors benefit from warrants in several ways. they can sell them to other investors
and collect the premium for a security in which they had no investment, or they can
exercise them and buy a well-performing security for less than market value.
,Discuss the preferred stock, including its risk characteristics and place in the order of
liquidation priority. - ANSWER✔✔-Preferred stock is an equity security representative
of shares of ownership in a company. They are tradable securities that are fairly liquid if
there is enough demand for the stock of the company. They tend to pay a higher
dividend than those received from common stock but do not appreciate as quickly as
common stock. Preferred stockholders do not have voting rights in a company's
decision making process. If a company were to be liquidated, they would be second
from the bottom on the list.
Discuss the characteristics of pooled investments. - ANSWER✔✔-Pooled investments
create economies of scale which lower an individual's administrative costs and allow for
greater diversification and benefit from professional money managers. Pooled
investments spread the risk over the pool of investors. The capital gains earned on
pooled funds are spread evenly over the pool, regardless of the tenure of the
participant.
Describe employee stock options, and discuss the difference in incentive plans and non
qualified plans concerning employee stock options. - ANSWER✔✔-Employee stock
options are options to buy a security of a certain company that are given to employees
of that company. Companies may issue employee stock options as a part of their
retirement savings or as taxable bonus compensation. These retirement incentive plans
, are tax deferred until redemption. Nonqualified plans are taxable upon receipt instead
of redemption.
Discuss fundamental analysis and how it is used to determine the value of equity
securities. - ANSWER✔✔-Fundamental analysis is the method by which investors
determine the value of equity securities using data gathered from the company's
financial statements. These fundamental numbers are assessed and if they are found to
be favorable, an investor will place a high valuation on the security, perhaps higher
than the current market value. This indicates to investor that it is a good time to buy the
stock.
Discuss the methods used to determine the value of pooled investments, including net
asset value and discounts versus premiums. - ANSWER✔✔-Net asset value (NAV)
refers to the value of all underlying assets minus liabilities divided by outstanding
shares. this is the most common valuation of mutaul fund shares and usually the price
point at which they trade. ETFs have a NA because they are pooled investments based
on a group of holdings, but they do not trade at that NAV.
Describe unit investments trusts, discuss their characteristics, and describe their role in
portfolio allocation. - ANSWER✔✔-UITs are created when investment companies that
are registered with the SEC buy a portfolio of income-producing securities and sell
participation in the portfolio to investors in the forms of shares of the trust. UITs are
characterized by their lack of management and lower fees than other similar
Characteristics Exam 2025 Questions
and Answers
Define restricted stock, and discuss the limitations placed thereon. - ANSWER✔✔-
Restricted stock is stock that is held in a company that was not offered as part of an
initial public offering. It is considered restricted because the company and equity issue
has not gone through the vetting process as required by the Securities Exchange
Commission. It is illegal to sell it to another investor without taking the proper steps to
inform the SEC of the sell and complying with the regulations.
Define warrant as related to the securities industry, and describe its usefulness to
investors. - ANSWER✔✔-warrants are derivative securities that allow the investor to
buy securities directly from the issuer at a given price within a defined period of time.
Investors benefit from warrants in several ways. they can sell them to other investors
and collect the premium for a security in which they had no investment, or they can
exercise them and buy a well-performing security for less than market value.
,Discuss the preferred stock, including its risk characteristics and place in the order of
liquidation priority. - ANSWER✔✔-Preferred stock is an equity security representative
of shares of ownership in a company. They are tradable securities that are fairly liquid if
there is enough demand for the stock of the company. They tend to pay a higher
dividend than those received from common stock but do not appreciate as quickly as
common stock. Preferred stockholders do not have voting rights in a company's
decision making process. If a company were to be liquidated, they would be second
from the bottom on the list.
Discuss the characteristics of pooled investments. - ANSWER✔✔-Pooled investments
create economies of scale which lower an individual's administrative costs and allow for
greater diversification and benefit from professional money managers. Pooled
investments spread the risk over the pool of investors. The capital gains earned on
pooled funds are spread evenly over the pool, regardless of the tenure of the
participant.
Describe employee stock options, and discuss the difference in incentive plans and non
qualified plans concerning employee stock options. - ANSWER✔✔-Employee stock
options are options to buy a security of a certain company that are given to employees
of that company. Companies may issue employee stock options as a part of their
retirement savings or as taxable bonus compensation. These retirement incentive plans
, are tax deferred until redemption. Nonqualified plans are taxable upon receipt instead
of redemption.
Discuss fundamental analysis and how it is used to determine the value of equity
securities. - ANSWER✔✔-Fundamental analysis is the method by which investors
determine the value of equity securities using data gathered from the company's
financial statements. These fundamental numbers are assessed and if they are found to
be favorable, an investor will place a high valuation on the security, perhaps higher
than the current market value. This indicates to investor that it is a good time to buy the
stock.
Discuss the methods used to determine the value of pooled investments, including net
asset value and discounts versus premiums. - ANSWER✔✔-Net asset value (NAV)
refers to the value of all underlying assets minus liabilities divided by outstanding
shares. this is the most common valuation of mutaul fund shares and usually the price
point at which they trade. ETFs have a NA because they are pooled investments based
on a group of holdings, but they do not trade at that NAV.
Describe unit investments trusts, discuss their characteristics, and describe their role in
portfolio allocation. - ANSWER✔✔-UITs are created when investment companies that
are registered with the SEC buy a portfolio of income-producing securities and sell
participation in the portfolio to investors in the forms of shares of the trust. UITs are
characterized by their lack of management and lower fees than other similar
