Series 66 Chapter 9 Exam Questions &
answers.
The process of calculating future value is also called
[A]Annualizing
[B]Discounting
[C]Compounding
[D]Amortization ANS -C
Compounding is known as the process of calculating future value.
An analyst on a financial television program reports that despite strong performance, personnel at
technology companies expect a downturn in that sector. Which of the following risks explain this
situation?
[A]interest rate
[B]business risk
[C]market risk
[D]liquidity risk ANS -C
In this scenario, the fluctuations in pricing of stocks throughout an entire industry would most likely be
attributed to market risk for that industry. It is unlikely that all businesses in an industry would have
substantial business risk or be thinly-traded. Interest-rate risk would not cause an industry-wide fall in
stock prices.
Which of the following measures is used to compare a security's volatility to the market as a whole?
[A]R-Squared
,[B]Beta
[C]Alpha
[D]Standard Deviation ANS -B
A stock's beta measures the security's volatility relative to the market as a whole or relative to a specific
benchmark (such as the S&P 500).Alpha measures returns based on fundamentals of a specific company.
Standard deviation measures the variance of a portfolio from an expected return (e.g., +/- 3%). R-
squared measures a portfolio relative to the overall market.
An investment's performance is best measured by:
[A]The investment's yield
[B]The investment's total Return
[C]The investment's benchmark return
[D]The investment's capital appreciation ANS -B
The best measure of an investment's performance is the sum of income and capital appreciation, known
as total return.
An investor buys 100 shares of ABC at $40 per share. At the end of one year, the investor has received
$3.00 in dividends per share and sells the stock at $35. What was the investor's total return?
[A](-12.5%)
[B]5%
[C](-5%)
[D]12.5% ANS -C
Total return is calculated by taking the increased (or decreased) value dividend by the value at the
beginning of the year. $35 - $40 = -$5 + $3 = -$2 or a $2.00 dollar loss. (-$2.00)/40 = -.05 or a 5% loss.
, Which of the following are pieces of the formula which determine the real rate of return on an
investment?
I. The investment's risk level
II. The investment's total return
III. The current rate of inflation
IV. The investment's internal rate of return
[A]I and III only
[B]I and IV only
[C]II and III only
[D]II and IV only ANS -C
The real rate of return is the total return of an investment minus the current rate of inflation. It attempts
to give investors a picture of their return in relation to the current rate of inflation, showing the investor
how inflation is affecting their overall returns.
A client comes into an IAR's office seeking advice about investing. The client wishes to be able to
liquidate investments quickly in order to meet varying cash flow needs on a month to month basis. The
client currently has their portfolio centered around large-cap stocks that trade on an exchange or on
NASDAQ. Which of the following is true of this scenario?
[A]The advisor should inform the client that large-cap stocks on an exchange or on NASDAQ are not
thought of as liquid investments.
[B]The advisor should inform the client that large-cap stocks on an exchange or on NASDAQ are thought
of as liquid investments, and if the investor wished to diversify but keep liquidity, they could do so with
investments in Treasury Securities, etc.
[C]The advisor should inform the client that large-cap stocks on an exchange or on NASDAQ are not as
liquid as other types of investments such as interests in limited partnerships.
[D]T ANS -B
When it comes to large-cap stocks listed on an exchange or listed on an exchange or on NASDAQ, these
stocks are typically thought of as highly liquid. This would suit this investor's needs. These listed or
answers.
The process of calculating future value is also called
[A]Annualizing
[B]Discounting
[C]Compounding
[D]Amortization ANS -C
Compounding is known as the process of calculating future value.
An analyst on a financial television program reports that despite strong performance, personnel at
technology companies expect a downturn in that sector. Which of the following risks explain this
situation?
[A]interest rate
[B]business risk
[C]market risk
[D]liquidity risk ANS -C
In this scenario, the fluctuations in pricing of stocks throughout an entire industry would most likely be
attributed to market risk for that industry. It is unlikely that all businesses in an industry would have
substantial business risk or be thinly-traded. Interest-rate risk would not cause an industry-wide fall in
stock prices.
Which of the following measures is used to compare a security's volatility to the market as a whole?
[A]R-Squared
,[B]Beta
[C]Alpha
[D]Standard Deviation ANS -B
A stock's beta measures the security's volatility relative to the market as a whole or relative to a specific
benchmark (such as the S&P 500).Alpha measures returns based on fundamentals of a specific company.
Standard deviation measures the variance of a portfolio from an expected return (e.g., +/- 3%). R-
squared measures a portfolio relative to the overall market.
An investment's performance is best measured by:
[A]The investment's yield
[B]The investment's total Return
[C]The investment's benchmark return
[D]The investment's capital appreciation ANS -B
The best measure of an investment's performance is the sum of income and capital appreciation, known
as total return.
An investor buys 100 shares of ABC at $40 per share. At the end of one year, the investor has received
$3.00 in dividends per share and sells the stock at $35. What was the investor's total return?
[A](-12.5%)
[B]5%
[C](-5%)
[D]12.5% ANS -C
Total return is calculated by taking the increased (or decreased) value dividend by the value at the
beginning of the year. $35 - $40 = -$5 + $3 = -$2 or a $2.00 dollar loss. (-$2.00)/40 = -.05 or a 5% loss.
, Which of the following are pieces of the formula which determine the real rate of return on an
investment?
I. The investment's risk level
II. The investment's total return
III. The current rate of inflation
IV. The investment's internal rate of return
[A]I and III only
[B]I and IV only
[C]II and III only
[D]II and IV only ANS -C
The real rate of return is the total return of an investment minus the current rate of inflation. It attempts
to give investors a picture of their return in relation to the current rate of inflation, showing the investor
how inflation is affecting their overall returns.
A client comes into an IAR's office seeking advice about investing. The client wishes to be able to
liquidate investments quickly in order to meet varying cash flow needs on a month to month basis. The
client currently has their portfolio centered around large-cap stocks that trade on an exchange or on
NASDAQ. Which of the following is true of this scenario?
[A]The advisor should inform the client that large-cap stocks on an exchange or on NASDAQ are not
thought of as liquid investments.
[B]The advisor should inform the client that large-cap stocks on an exchange or on NASDAQ are thought
of as liquid investments, and if the investor wished to diversify but keep liquidity, they could do so with
investments in Treasury Securities, etc.
[C]The advisor should inform the client that large-cap stocks on an exchange or on NASDAQ are not as
liquid as other types of investments such as interests in limited partnerships.
[D]T ANS -B
When it comes to large-cap stocks listed on an exchange or listed on an exchange or on NASDAQ, these
stocks are typically thought of as highly liquid. This would suit this investor's needs. These listed or
