Series 65® Exam Prep 2026 Comprehensive Study
Guide with 100 Practice Questions, Detailed
Explanations, and Verified Answers
SECTION 1: ECONOMIC FACTORS AND BUSINESS INFORMATION (15
Questions)
Question 1
Which phase of the business cycle is characterized by rising GDP, increasing
employment, and expanding consumer confidence?
A) Trough
B) Expansion
C) Peak
D) Contraction
Answer: B
Rationale: The expansion phase of the business cycle is characterized by rising
GDP, increasing employment, expanding consumer confidence, and overall
economic growth. The trough (Option A) is the lowest point of the cycle. The peak
(Option C) is the highest point before contraction begins. The contraction (Option
D) is characterized by declining GDP, rising unemployment, and decreasing
consumer confidence.
Question 2
Which of the following is a leading economic indicator?
A) Consumer Price Index (CPI)
B) Unemployment rate
C) Average weekly initial claims for unemployment insurance
D) Gross Domestic Product (GDP)
Answer: C
,Rationale: Average weekly initial claims for unemployment insurance is a
leading indicator because it tends to change before the economy as a whole
changes. CPI (Option A) and the unemployment rate (Option B) are lagging
indicators—they change after the economy has already begun to follow a particular
trend. GDP (Option D) is a coincident indicator that moves with the economy.
Question 3
The Federal Reserve implements expansionary monetary policy by:
A) Increasing the discount rate
B) Selling government securities in the open market
C) Decreasing the reserve requirement
D) Increasing the federal funds rate
Answer: C
Rationale: Decreasing the reserve requirement is an expansionary monetary
policy action because it allows banks to lend more money, increasing the money
supply and stimulating economic activity. Increasing the discount rate (Option A),
selling securities (Option B—contractionary open market operations), and
increasing the federal funds rate (Option D) are all contractionary monetary policy
actions.
Question 4
A company has current assets of $500,000 and current liabilities of $250,000.
What is the company's current ratio?
A) 0.5
B) 1.0
C) 2.0
D) 2.5
Answer: C
Rationale: The current ratio is calculated as Current Assets ÷ Current Liabilities
= $500,000 ÷ $250,000 = 2.0. This means the company has $2.00 in current assets
for every $1.00 of current liabilities. Option A (0.5) would be the inverse
,(liabilities/assets). Option B (1.0) would be equal assets and liabilities. Option D
(2.5) would be $625,000 in assets.
Question 5
Which of the following is a component of the balance sheet?
A) Revenue
B) Expenses
C) Accounts payable
D) Net income
Answer: C
Rationale: Accounts payable is a liability and appears on the balance sheet.
Revenue (Option A), expenses (Option B), and net income (Option D) all appear
on the income statement, not the balance sheet. The balance sheet reports assets,
liabilities, and shareholders' equity at a specific point in time.
Question 6
A bond has a face value of $1,000, a coupon rate of 5%, and a yield to maturity of
6%. The bond is trading at:
A) A premium
B) A discount
C) Par value
D) Cannot be determined
Answer: B
Rationale: A bond trades at a discount when the coupon rate (5%) is less than the
yield to maturity (6%). A bond trades at a premium when the coupon rate is greater
than the YTM (Option A). A bond trades at par when the coupon rate equals the
YTM (Option C).
Question 7
Which type of risk is NOT diversifiable?
, A) Business risk
B) Regulatory risk
C) Market risk
D) Liquidity risk
Answer: C
Rationale: Market risk is a systematic risk that affects all securities and cannot be
diversified away. Business risk (Option A), regulatory risk (Option B), and
liquidity risk (Option D) are unsystematic risks that can be reduced through
diversification.
Question 8
The net present value (NPV) of a project is positive. This means:
A) The project should be rejected
B) The project's internal rate of return is less than the required rate of return
C) The project's expected return exceeds the required rate of return
D) The project will generate losses
Answer: C
Rationale: A positive NPV indicates that the project's expected return exceeds the
required rate of return (the discount rate used in the calculation). A positive
NPV project should generally be accepted (Option A is incorrect). When NPV is
positive, the IRR is greater than the required rate of return (Option B is incorrect).
A positive NPV means the project creates value (Option D is incorrect).
Question 9
Which of the following is a measure of central tendency?
A) Standard deviation
B) Range
C) Mean
D) Beta
Answer: C
Guide with 100 Practice Questions, Detailed
Explanations, and Verified Answers
SECTION 1: ECONOMIC FACTORS AND BUSINESS INFORMATION (15
Questions)
Question 1
Which phase of the business cycle is characterized by rising GDP, increasing
employment, and expanding consumer confidence?
A) Trough
B) Expansion
C) Peak
D) Contraction
Answer: B
Rationale: The expansion phase of the business cycle is characterized by rising
GDP, increasing employment, expanding consumer confidence, and overall
economic growth. The trough (Option A) is the lowest point of the cycle. The peak
(Option C) is the highest point before contraction begins. The contraction (Option
D) is characterized by declining GDP, rising unemployment, and decreasing
consumer confidence.
Question 2
Which of the following is a leading economic indicator?
A) Consumer Price Index (CPI)
B) Unemployment rate
C) Average weekly initial claims for unemployment insurance
D) Gross Domestic Product (GDP)
Answer: C
,Rationale: Average weekly initial claims for unemployment insurance is a
leading indicator because it tends to change before the economy as a whole
changes. CPI (Option A) and the unemployment rate (Option B) are lagging
indicators—they change after the economy has already begun to follow a particular
trend. GDP (Option D) is a coincident indicator that moves with the economy.
Question 3
The Federal Reserve implements expansionary monetary policy by:
A) Increasing the discount rate
B) Selling government securities in the open market
C) Decreasing the reserve requirement
D) Increasing the federal funds rate
Answer: C
Rationale: Decreasing the reserve requirement is an expansionary monetary
policy action because it allows banks to lend more money, increasing the money
supply and stimulating economic activity. Increasing the discount rate (Option A),
selling securities (Option B—contractionary open market operations), and
increasing the federal funds rate (Option D) are all contractionary monetary policy
actions.
Question 4
A company has current assets of $500,000 and current liabilities of $250,000.
What is the company's current ratio?
A) 0.5
B) 1.0
C) 2.0
D) 2.5
Answer: C
Rationale: The current ratio is calculated as Current Assets ÷ Current Liabilities
= $500,000 ÷ $250,000 = 2.0. This means the company has $2.00 in current assets
for every $1.00 of current liabilities. Option A (0.5) would be the inverse
,(liabilities/assets). Option B (1.0) would be equal assets and liabilities. Option D
(2.5) would be $625,000 in assets.
Question 5
Which of the following is a component of the balance sheet?
A) Revenue
B) Expenses
C) Accounts payable
D) Net income
Answer: C
Rationale: Accounts payable is a liability and appears on the balance sheet.
Revenue (Option A), expenses (Option B), and net income (Option D) all appear
on the income statement, not the balance sheet. The balance sheet reports assets,
liabilities, and shareholders' equity at a specific point in time.
Question 6
A bond has a face value of $1,000, a coupon rate of 5%, and a yield to maturity of
6%. The bond is trading at:
A) A premium
B) A discount
C) Par value
D) Cannot be determined
Answer: B
Rationale: A bond trades at a discount when the coupon rate (5%) is less than the
yield to maturity (6%). A bond trades at a premium when the coupon rate is greater
than the YTM (Option A). A bond trades at par when the coupon rate equals the
YTM (Option C).
Question 7
Which type of risk is NOT diversifiable?
, A) Business risk
B) Regulatory risk
C) Market risk
D) Liquidity risk
Answer: C
Rationale: Market risk is a systematic risk that affects all securities and cannot be
diversified away. Business risk (Option A), regulatory risk (Option B), and
liquidity risk (Option D) are unsystematic risks that can be reduced through
diversification.
Question 8
The net present value (NPV) of a project is positive. This means:
A) The project should be rejected
B) The project's internal rate of return is less than the required rate of return
C) The project's expected return exceeds the required rate of return
D) The project will generate losses
Answer: C
Rationale: A positive NPV indicates that the project's expected return exceeds the
required rate of return (the discount rate used in the calculation). A positive
NPV project should generally be accepted (Option A is incorrect). When NPV is
positive, the IRR is greater than the required rate of return (Option B is incorrect).
A positive NPV means the project creates value (Option D is incorrect).
Question 9
Which of the following is a measure of central tendency?
A) Standard deviation
B) Range
C) Mean
D) Beta
Answer: C
