Series 65 Practice Test w/ Brian Lee
UPDATED ACTUAL Exam Questions and
CORRECT Answers
Which of these portfolio allocations below would you expect to show the least volatility over the
next year?
A. 50%/50%, Std. Dev. 11.25
B. 30%/70%, Std. Dev. 10.75
C. 10%/90%, Std. Dev. 10.15
D. 100%/0%, Std. Dev. 10.34 - CORRECT ANSWER - C. The measure of a portfolio's
volatility is its standard deviation
If the S&P goes up 5%, what is the MOST LIKELY result of XYZ with a Beta of 1.5?
A. 3.33%
B. 3.5%
C. 6.5%
D. 7.5% - CORRECT ANSWER - D. Beta is a meausre of volatility versus the overall
market. 5% times 1.5 = 7.5%
The method of computing long-term returns that takes into consideration time value of money is
A. internal rate of return
B. after-tax return
C. real rate of return
D. risk-adjusted return - CORRECT ANSWER - A. One of the unique features of IRR is
that it is a compounded rate using the time value of money.
An investor is looking at the past performance of a security over the past three years. In year one,
it returned 8%; year two it returned 15% and year three it returned 10%. This computes to an
average rate of return of 11%. This would be properly referred to as
A. arithmetic mean
,B. geometric mean
C. internal rate of return
D. median return - CORRECT ANSWER - A. When a true average return is shown, that is
the arithmetic mean. The median return (the number in the middle of the group of three) is 10%.
Which of the following pairs offers the most diversification?
A. U.S. equity securities and foreign equity securities
B. Municipal GO bonds and long-term U.S. Treasury bonds
C. Large-cap stock/blue chip stock
D. Corporate debentures/convertible bonds - CORRECT ANSWER - A. Diversification is
generally accomplished by adding securities that don't have a high degree of correlation. Large-
cap and blue-chip are essentially the same thing. Most convertible bonds are debentures. Only in
the case of domestic and international stocks will we find a low correlation.
According to the Efficient Market Hypothesis, information based on company financial and
economics factors is considered to be:
A. Weak
B. Semi-strong
C. Strong
D. Exceptional - CORRECT ANSWER - B. If we knew information known to insiders it
would be strong.
In modern portfolio theory, what is an efficient portfolio set?
A. efficient frontier
B. indifferent frontier
C. attainable set
D. feasible set - CORRECT ANSWER - A. The set of portfolio's that maximize retrun
versus risk is a curve known as the efficient frontier
Which two are most associated with a Treasury bond?
,I Credit Risk
II Liquity Risk
III Reinvestment Risk
IV Interest Rate Risk
A. I and II
B. I and IV
C. II and III
D. III and IV - CORRECT ANSWER - D. All debt instruments are interest rate sensitive
and nearly all (except zero coupon bonds) have reinvestment risk. U.S. securities are seen as one
of the safest securities in the world.
When current interest rates are at 9%, you would expect a bond with a nominal yield of 8% to be
A. selling at par
B. selling at a discount
C. selling at a premium
D. in danger of default - CORRECT ANSWER - B. Since current interest rates are above
the nominal yield (coupon rate), the price of the bond would fall below par
A company has two outstanding bond issues, both with a coupon rate of 8%. Bond A will mature
in 2 years while Bond B will mature in 15 years. If interest rates were to increase to 10%, which
of the of the following statements is correct?
A. both bonds will be selling at a premium
B. bond B will be selling at a greater premium than Bond A
C. bond B will be selling at a greater discount than Bond A
D. the company will attempt to postpone the maturity of Bond A - CORRECT ANSWER -
C. Since interest rates are above the coupon rate, the price of both bonds would fall. The longer
maturity, being more volatile, would fall furthest.
An investor is long 100sh of XYZ. She fears a near-term correction but overall she remains
bullish. Which of the following may allow her to profit from this situation?
A. Buy a call
, B. Buy a put
C. Sell a call
D. Sell a put - CORRECT ANSWER - C. In hedge strategies, the option always follows
the risk direction of the stock, to generate a profit (income), you would then sell the option
An investor who is short 100sh of XYZ and would like to protect against risk would
A. Buy a call
B. Buy a put
C. Sell a call
D. Sell a put - CORRECT ANSWER - A. Same as above answer, except to protect the
stock, you must buy the option
With life insurance, a "Capital Needs Analysis" maybe helpful for all of the following except
A. Planning for an income stream
B. Capital for tax purposes
C. Future life insurance needs
D. Completion of investment objective - CORRECT ANSWER - C. Capital Needs
Analysis is used to determine the use and amount of insurance needed to meet future needs. You
don't purchase insurance to buy insurance in the future.
Which of these describes a market maker?
A. a broker/dealer who stands ready to buy or sell at least the standard unit of a specific stock
traded in the over-the-counter market
B. a broker/dealer who stands ready to buy or sell at least the standard unit of a specific stock
traded on a listed exchange
C. an investment banker who participates in a firm underwriting
D. a subscriber to the NASDAQ system - CORRECT ANSWER - A. Market makers exist
it the OTC market. Specialists exist on exchanges..
An investor, looking to create a diverse portfolio, would most likely consider which of the
following?
UPDATED ACTUAL Exam Questions and
CORRECT Answers
Which of these portfolio allocations below would you expect to show the least volatility over the
next year?
A. 50%/50%, Std. Dev. 11.25
B. 30%/70%, Std. Dev. 10.75
C. 10%/90%, Std. Dev. 10.15
D. 100%/0%, Std. Dev. 10.34 - CORRECT ANSWER - C. The measure of a portfolio's
volatility is its standard deviation
If the S&P goes up 5%, what is the MOST LIKELY result of XYZ with a Beta of 1.5?
A. 3.33%
B. 3.5%
C. 6.5%
D. 7.5% - CORRECT ANSWER - D. Beta is a meausre of volatility versus the overall
market. 5% times 1.5 = 7.5%
The method of computing long-term returns that takes into consideration time value of money is
A. internal rate of return
B. after-tax return
C. real rate of return
D. risk-adjusted return - CORRECT ANSWER - A. One of the unique features of IRR is
that it is a compounded rate using the time value of money.
An investor is looking at the past performance of a security over the past three years. In year one,
it returned 8%; year two it returned 15% and year three it returned 10%. This computes to an
average rate of return of 11%. This would be properly referred to as
A. arithmetic mean
,B. geometric mean
C. internal rate of return
D. median return - CORRECT ANSWER - A. When a true average return is shown, that is
the arithmetic mean. The median return (the number in the middle of the group of three) is 10%.
Which of the following pairs offers the most diversification?
A. U.S. equity securities and foreign equity securities
B. Municipal GO bonds and long-term U.S. Treasury bonds
C. Large-cap stock/blue chip stock
D. Corporate debentures/convertible bonds - CORRECT ANSWER - A. Diversification is
generally accomplished by adding securities that don't have a high degree of correlation. Large-
cap and blue-chip are essentially the same thing. Most convertible bonds are debentures. Only in
the case of domestic and international stocks will we find a low correlation.
According to the Efficient Market Hypothesis, information based on company financial and
economics factors is considered to be:
A. Weak
B. Semi-strong
C. Strong
D. Exceptional - CORRECT ANSWER - B. If we knew information known to insiders it
would be strong.
In modern portfolio theory, what is an efficient portfolio set?
A. efficient frontier
B. indifferent frontier
C. attainable set
D. feasible set - CORRECT ANSWER - A. The set of portfolio's that maximize retrun
versus risk is a curve known as the efficient frontier
Which two are most associated with a Treasury bond?
,I Credit Risk
II Liquity Risk
III Reinvestment Risk
IV Interest Rate Risk
A. I and II
B. I and IV
C. II and III
D. III and IV - CORRECT ANSWER - D. All debt instruments are interest rate sensitive
and nearly all (except zero coupon bonds) have reinvestment risk. U.S. securities are seen as one
of the safest securities in the world.
When current interest rates are at 9%, you would expect a bond with a nominal yield of 8% to be
A. selling at par
B. selling at a discount
C. selling at a premium
D. in danger of default - CORRECT ANSWER - B. Since current interest rates are above
the nominal yield (coupon rate), the price of the bond would fall below par
A company has two outstanding bond issues, both with a coupon rate of 8%. Bond A will mature
in 2 years while Bond B will mature in 15 years. If interest rates were to increase to 10%, which
of the of the following statements is correct?
A. both bonds will be selling at a premium
B. bond B will be selling at a greater premium than Bond A
C. bond B will be selling at a greater discount than Bond A
D. the company will attempt to postpone the maturity of Bond A - CORRECT ANSWER -
C. Since interest rates are above the coupon rate, the price of both bonds would fall. The longer
maturity, being more volatile, would fall furthest.
An investor is long 100sh of XYZ. She fears a near-term correction but overall she remains
bullish. Which of the following may allow her to profit from this situation?
A. Buy a call
, B. Buy a put
C. Sell a call
D. Sell a put - CORRECT ANSWER - C. In hedge strategies, the option always follows
the risk direction of the stock, to generate a profit (income), you would then sell the option
An investor who is short 100sh of XYZ and would like to protect against risk would
A. Buy a call
B. Buy a put
C. Sell a call
D. Sell a put - CORRECT ANSWER - A. Same as above answer, except to protect the
stock, you must buy the option
With life insurance, a "Capital Needs Analysis" maybe helpful for all of the following except
A. Planning for an income stream
B. Capital for tax purposes
C. Future life insurance needs
D. Completion of investment objective - CORRECT ANSWER - C. Capital Needs
Analysis is used to determine the use and amount of insurance needed to meet future needs. You
don't purchase insurance to buy insurance in the future.
Which of these describes a market maker?
A. a broker/dealer who stands ready to buy or sell at least the standard unit of a specific stock
traded in the over-the-counter market
B. a broker/dealer who stands ready to buy or sell at least the standard unit of a specific stock
traded on a listed exchange
C. an investment banker who participates in a firm underwriting
D. a subscriber to the NASDAQ system - CORRECT ANSWER - A. Market makers exist
it the OTC market. Specialists exist on exchanges..
An investor, looking to create a diverse portfolio, would most likely consider which of the
following?
