SERIES 65 EXAM 3 2025
QUESTIONS AND ANSWERS
Capital Asset Pricing Model (CAPM) - ANSWER✔✔-a model that relates the required rate of
return on a security to its systematic risk as measured by beta
Agent of a BD - ANSWER✔✔-Subchapter S status is revoked if there are more than 100
shareholders. As with limited partners, shareholders have limited liability, and income and losses
flow through to shareholders. Subchapter S Corporations have state charters.
The identity of an estates executor can be determined from which document? - ANSWER✔✔-
Normally, the deceased has named an executor (executrix) in her will.
All of the following are disadvantages for a limited partner, EXCEPT:
A. The conduit (flow-through) treatment for income and loss
B. Lack of voting power
C. Lack of liquidity
D. Possible adverse changes in the Internal Revenue Code - ANSWER✔✔-A. Limited partnerships
are not a liquid investment. Investors should have staying power if they are considering a purchase
of a limited partnership interest. Another risk would be changes in the Internal Revenue Code,
which could cause the tax benefits from the program to be invalid. Also, a limited partner has no
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,voice (vote) in the operation of the program. A major advantage is that the partnership is not a
taxable entity. All income and loss flows through to the partner for treatment on the partner's own
tax return.
Random Walk Theory (Hypothesis) - ANSWER✔✔-A follower of the Random Walk Hypothesis
believes that the market is too efficient to effectively trade with sustained returns exceeding the
average return of the market. She would, therefore, most likely follow a buy and hold strategy,
possibly in index funds. Market timing, even using index funds, is not taking a random walk
approach.
What is the cost basis for a beneficiary? - ANSWER✔✔-When receiving a gift of stock, the
recipient's cost basis is the donor's cost basis or the market value as of the date of the gift,
whichever is less.
Which of the following nonissuer transactions would be exempt from registration under the
Uniform Securities Act?
A. The issuer is operating an Internet business and has not had a profit since going public
B. The issuer is operating as a blank-check company that is investing in profitable companies
C. The issuer is operating a company whose primary business is to engage in mergers and
acquisitions
D. The issuer is operating as a blind-pool company that is investing in companies that have been in
business for at least two years - ANSWER✔✔-A. Under the USA, a nonissuer transaction may be
exempt from registration if the issuer is engaged in business, whether or not the company is
profitable. The USA specifically states that this exemption is not available if the issuer operates a
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, blank-check, blind-pool, or shell company whose primary business plan is to engage in a merger or
business combination. The answer here is not suggesting that a transaction in a security of an
unprofitable company is exempt from registration; however, the other choices are definitely not
considered exempt transactions.
A client has been watching a thinly traded stock and has noticed that it has not had any trading
activity today. What type of risk is the MOST significant for this type of investment?
A.Market risk
B. Inflation risk
C. Liquidity risk
D. Business risk - ANSWER✔✔-CIf a security is thinly traded, it indicates that the market for that
investment is illiquid. If an investment has a wide spread, it means the difference between the bid
and ask prices is larger than normal. Market risk, or the risk that the market will affect a security's
value, is a real risk, but not the most significant one for a thinly traded stock. Even if the stock
market increases, the stock itself may still be illiquid
A corporate bond has a 12% nominal yield. To be equivalent, an investor in the 28% tax bracket
would need a municipal bond with a yield of:
A.7.9%
B. 10.2%
C. 8.6%
FOR STUDY PURPOSES ONLY COPYRIGHT © 2025 ALL RIGHTS RESERVED 3
QUESTIONS AND ANSWERS
Capital Asset Pricing Model (CAPM) - ANSWER✔✔-a model that relates the required rate of
return on a security to its systematic risk as measured by beta
Agent of a BD - ANSWER✔✔-Subchapter S status is revoked if there are more than 100
shareholders. As with limited partners, shareholders have limited liability, and income and losses
flow through to shareholders. Subchapter S Corporations have state charters.
The identity of an estates executor can be determined from which document? - ANSWER✔✔-
Normally, the deceased has named an executor (executrix) in her will.
All of the following are disadvantages for a limited partner, EXCEPT:
A. The conduit (flow-through) treatment for income and loss
B. Lack of voting power
C. Lack of liquidity
D. Possible adverse changes in the Internal Revenue Code - ANSWER✔✔-A. Limited partnerships
are not a liquid investment. Investors should have staying power if they are considering a purchase
of a limited partnership interest. Another risk would be changes in the Internal Revenue Code,
which could cause the tax benefits from the program to be invalid. Also, a limited partner has no
FOR STUDY PURPOSES ONLY COPYRIGHT © 2025 ALL RIGHTS RESERVED 1
,voice (vote) in the operation of the program. A major advantage is that the partnership is not a
taxable entity. All income and loss flows through to the partner for treatment on the partner's own
tax return.
Random Walk Theory (Hypothesis) - ANSWER✔✔-A follower of the Random Walk Hypothesis
believes that the market is too efficient to effectively trade with sustained returns exceeding the
average return of the market. She would, therefore, most likely follow a buy and hold strategy,
possibly in index funds. Market timing, even using index funds, is not taking a random walk
approach.
What is the cost basis for a beneficiary? - ANSWER✔✔-When receiving a gift of stock, the
recipient's cost basis is the donor's cost basis or the market value as of the date of the gift,
whichever is less.
Which of the following nonissuer transactions would be exempt from registration under the
Uniform Securities Act?
A. The issuer is operating an Internet business and has not had a profit since going public
B. The issuer is operating as a blank-check company that is investing in profitable companies
C. The issuer is operating a company whose primary business is to engage in mergers and
acquisitions
D. The issuer is operating as a blind-pool company that is investing in companies that have been in
business for at least two years - ANSWER✔✔-A. Under the USA, a nonissuer transaction may be
exempt from registration if the issuer is engaged in business, whether or not the company is
profitable. The USA specifically states that this exemption is not available if the issuer operates a
FOR STUDY PURPOSES ONLY COPYRIGHT © 2025 ALL RIGHTS RESERVED 2
, blank-check, blind-pool, or shell company whose primary business plan is to engage in a merger or
business combination. The answer here is not suggesting that a transaction in a security of an
unprofitable company is exempt from registration; however, the other choices are definitely not
considered exempt transactions.
A client has been watching a thinly traded stock and has noticed that it has not had any trading
activity today. What type of risk is the MOST significant for this type of investment?
A.Market risk
B. Inflation risk
C. Liquidity risk
D. Business risk - ANSWER✔✔-CIf a security is thinly traded, it indicates that the market for that
investment is illiquid. If an investment has a wide spread, it means the difference between the bid
and ask prices is larger than normal. Market risk, or the risk that the market will affect a security's
value, is a real risk, but not the most significant one for a thinly traded stock. Even if the stock
market increases, the stock itself may still be illiquid
A corporate bond has a 12% nominal yield. To be equivalent, an investor in the 28% tax bracket
would need a municipal bond with a yield of:
A.7.9%
B. 10.2%
C. 8.6%
FOR STUDY PURPOSES ONLY COPYRIGHT © 2025 ALL RIGHTS RESERVED 3
