Series 65: Practice ACTUAL UPDATED
Exam Questions and CORRECT Answers
KAPCO, Inc., has 100 million shares of $1 par common stock outstanding. If the current market
price of the KAPCO common stock is $33 per share, KAPCO would be considered a
A)
small-cap stock.
B)
micro-cap stock.
C)
large-cap stock.
D)
mid-cap stock. - CORRECT ANSWER - D) By doing the arithmetic, we see that the
market capitalization of KAPCO common stock is $3.3 billion. Stocks with a market cap in the
range of $2 to $10 billion are considered mid cap.
The issuance of new common stock will affect which of the following balance sheet items?
Total assets
Current liabilities
Retained earnings
Net worth
A)
I and III
B)
II and IV
C)
I and IV
D)
,II and III - CORRECT ANSWER - C) Issuing stock brings in new capital in the form of
cash. This raises the assets and, since stock is equity, raises the net worth by the same amount.
The technical market theory that measures the breadth of the market is
A)
the advance/decline theory.
B)
the short-interest theory.
C)
the support/resistance theory.
D)
the odd-lot theory. - CORRECT ANSWER - A) The advance/decline theory compares the
number of stocks advancing versus those declining, generally on the New York Stock Exchange.
Because it uses such a large sample, it is used as an example of the breadth of the market.
state-registered & federal covered investment advisers have brochure delivery requirements. A
difference between the 2 is
A) federal covered advisers are exempt from the brochure delivery requirements to investment
company clients while state-registered advisers are not.
B) state-registered advisers must deliver the brochure within 90 days of the end of their fiscal
year while covered advisers have 120 days.
C) state-registered advisers who do not deliver the brochure at least five days prior t -
CORRECT ANSWER - D) State-registered investment advisers who do not deliver the
brochure at least 48 hours prior to entering the contract must offer a penalty-free withdrawal of
five days. There is nothing comparable to that in the federal law. Both have the 120-day delivery
requirement, and state-registered investment advisers cannot have investment companies as
clients.
An estate-planning technique often recommended for those with large, taxable estates is the use
of
A)
the alternative valuation date.
, B)
a testamentary trust.
C)
an irrevocable life insurance trust (ILIT).
D)
the capital needs analysis. - CORRECT ANSWER - C) For those with large, taxable
estates, the purchase of life insurance to cover the potential estate tax liability is frequently
recommended. The use of the ILIT will generally keep the proceeds out of the estate. The
alternative valuation date helps only if the value of the estate drops sometime during the six
months after death. A testamentary trust does little, if anything, to reduce estate taxes. The
capital needs analysis is used to determine the replacement value needed in the event of
premature death—which is unlikely to be needed with this large of an estate.
A 46-year-old investor wants to have retirement savings worth $1 million at age 70. If the
investor can earn 9%, using the rule of 72, the present value needed today is closest to
A)
$90,000.
B)
$125,000.
C)
$250,000.
D)
$500,000. - CORRECT ANSWER - B) The rule of 72 can be used to determine how long
it takes for a specific sum to double in value. If you know the rate of return (9% in this question),
you divide 72 by that rate (72 divided by 9) to learn that money will double every 8 years. A 46-
year-old looking ahead to age 70 has 24 years (70 - 46) for the money to grow. If the IRA
earning 9% will double in value every 8 years, in 24 years, it will have doubled 3 times. If a
number doubles 3 times, its value is 8 times the original amount (1 doubled is 2, doubled is 4,
doubled is 8): $1 million ÷ 8 = $125,000. Another way to get the answer on the exam is to start
with the answer choices and see which one when doubled 3 times reaches $1 million. If you have
$125,000 presently, the first doubling takes it to $250,000, the second to $500,000, and the third
to $1 million.
A portfolio manager looking to create alpha would most likely use which of the following?
Exam Questions and CORRECT Answers
KAPCO, Inc., has 100 million shares of $1 par common stock outstanding. If the current market
price of the KAPCO common stock is $33 per share, KAPCO would be considered a
A)
small-cap stock.
B)
micro-cap stock.
C)
large-cap stock.
D)
mid-cap stock. - CORRECT ANSWER - D) By doing the arithmetic, we see that the
market capitalization of KAPCO common stock is $3.3 billion. Stocks with a market cap in the
range of $2 to $10 billion are considered mid cap.
The issuance of new common stock will affect which of the following balance sheet items?
Total assets
Current liabilities
Retained earnings
Net worth
A)
I and III
B)
II and IV
C)
I and IV
D)
,II and III - CORRECT ANSWER - C) Issuing stock brings in new capital in the form of
cash. This raises the assets and, since stock is equity, raises the net worth by the same amount.
The technical market theory that measures the breadth of the market is
A)
the advance/decline theory.
B)
the short-interest theory.
C)
the support/resistance theory.
D)
the odd-lot theory. - CORRECT ANSWER - A) The advance/decline theory compares the
number of stocks advancing versus those declining, generally on the New York Stock Exchange.
Because it uses such a large sample, it is used as an example of the breadth of the market.
state-registered & federal covered investment advisers have brochure delivery requirements. A
difference between the 2 is
A) federal covered advisers are exempt from the brochure delivery requirements to investment
company clients while state-registered advisers are not.
B) state-registered advisers must deliver the brochure within 90 days of the end of their fiscal
year while covered advisers have 120 days.
C) state-registered advisers who do not deliver the brochure at least five days prior t -
CORRECT ANSWER - D) State-registered investment advisers who do not deliver the
brochure at least 48 hours prior to entering the contract must offer a penalty-free withdrawal of
five days. There is nothing comparable to that in the federal law. Both have the 120-day delivery
requirement, and state-registered investment advisers cannot have investment companies as
clients.
An estate-planning technique often recommended for those with large, taxable estates is the use
of
A)
the alternative valuation date.
, B)
a testamentary trust.
C)
an irrevocable life insurance trust (ILIT).
D)
the capital needs analysis. - CORRECT ANSWER - C) For those with large, taxable
estates, the purchase of life insurance to cover the potential estate tax liability is frequently
recommended. The use of the ILIT will generally keep the proceeds out of the estate. The
alternative valuation date helps only if the value of the estate drops sometime during the six
months after death. A testamentary trust does little, if anything, to reduce estate taxes. The
capital needs analysis is used to determine the replacement value needed in the event of
premature death—which is unlikely to be needed with this large of an estate.
A 46-year-old investor wants to have retirement savings worth $1 million at age 70. If the
investor can earn 9%, using the rule of 72, the present value needed today is closest to
A)
$90,000.
B)
$125,000.
C)
$250,000.
D)
$500,000. - CORRECT ANSWER - B) The rule of 72 can be used to determine how long
it takes for a specific sum to double in value. If you know the rate of return (9% in this question),
you divide 72 by that rate (72 divided by 9) to learn that money will double every 8 years. A 46-
year-old looking ahead to age 70 has 24 years (70 - 46) for the money to grow. If the IRA
earning 9% will double in value every 8 years, in 24 years, it will have doubled 3 times. If a
number doubles 3 times, its value is 8 times the original amount (1 doubled is 2, doubled is 4,
doubled is 8): $1 million ÷ 8 = $125,000. Another way to get the answer on the exam is to start
with the answer choices and see which one when doubled 3 times reaches $1 million. If you have
$125,000 presently, the first doubling takes it to $250,000, the second to $500,000, and the third
to $1 million.
A portfolio manager looking to create alpha would most likely use which of the following?
