MASTERY EXAM 2026 PRACTICE TEST SHEET
FULL SOLUTIONS CORRECT ANSWERS
PREPARATION SET
◉ Which of the following situations may not be disclosed to a
potential buyer while a security is in registration?
A)
There will be a road show in New York City in May.
B)
A brokerage report shows the security is properly undervalued.
C)
The issue is being offered through ABC Investment Bank.
D)
The issue is expected to be priced in early June.
Answer: B
Brokerage reports may not be distributed while a security is in
registration. Expected dates for pricing and road shows (due
diligence meetings) may be communicated to potential buyers. The
underwriters are named in the issue's registration statement.
◉ An IRA can be funded using all of the following except
A)
,an investment company.
B)
works of art.
C)
stocks and bonds.
D)
securities.
Answer: B
IRAs can be funded with stocks, bonds, investment company
securities (open- and closed-end funds), U.S.-minted gold and silver
coins, and many other securities. There are, however, certain
investments that are ineligible in an IRA such as collectibles,
antiques works of art, and others.
◉ Which of the following investments typically carries significant
liquidity risk?
A)
Listed equities
B)
T-bills
C)
Mutual funds
D)
,Limited partnership
Answer: D
Limited partnership units are not freely transferable and have no
established secondary market. With an LP, you should assume you
will own it throughout the life of the program. All the others listed
here have active secondary markets and are very liquid.
◉ Why is a fixed annuity not considered to be a security?
A)
The fixed annuity buyer assumes no investment risk.
B)
The portfolio may be indirectly managed.
C)
Although it is an insurance company product, it is not life insurance.
D)
Inflation protection for the purchaser is guaranteed.
Answer: A
With fixed insurance products such as whole life insurance and fixed
annuities, the insurance company assumes the investment risk. This
elimination of investment risk for the purchaser is what
differentiates the product from a security. Note that with fixed
products, even though not a security, the purchaser faces inflation
risk.
, ◉ Benjamin Jackson bought 100 shares of XYZ two years ago at $10
per share. The stock paid a $0.50 dividend each year and he sold the
stock for $11. What percent was his total return?
A)
20%
B)
50%
C)
5%
D)
10%
Answer: A
An investor's total return is made up of any income received, such as
dividends on stock or interest on bonds, plus any gain (or loss) over
the holding period. That makes the formula for total return in this
question: dividends plus capital gains divided by amount invested.
The math looks like this: two years of dividends at $0.50 per year
equals $1. The stock was purchased for $10 and sold for $11
resulting in a gain of $1. Add the $1 of income to the $1 of gains and
then divide the resulting $2 by the cost basis of $10. This results in a
total return of 20% (2/10 = 0.2). Please note that when a question
refers to the amount of a dividend paid on stock, unless specified
otherwise, it is a quarterly payment. This question specifies the
annual amount is $0.50, so do not multiply that times 4 assuming
the dividend is quarterly. If you did that, you probably answered
50%.
FULL SOLUTIONS CORRECT ANSWERS
PREPARATION SET
◉ Which of the following situations may not be disclosed to a
potential buyer while a security is in registration?
A)
There will be a road show in New York City in May.
B)
A brokerage report shows the security is properly undervalued.
C)
The issue is being offered through ABC Investment Bank.
D)
The issue is expected to be priced in early June.
Answer: B
Brokerage reports may not be distributed while a security is in
registration. Expected dates for pricing and road shows (due
diligence meetings) may be communicated to potential buyers. The
underwriters are named in the issue's registration statement.
◉ An IRA can be funded using all of the following except
A)
,an investment company.
B)
works of art.
C)
stocks and bonds.
D)
securities.
Answer: B
IRAs can be funded with stocks, bonds, investment company
securities (open- and closed-end funds), U.S.-minted gold and silver
coins, and many other securities. There are, however, certain
investments that are ineligible in an IRA such as collectibles,
antiques works of art, and others.
◉ Which of the following investments typically carries significant
liquidity risk?
A)
Listed equities
B)
T-bills
C)
Mutual funds
D)
,Limited partnership
Answer: D
Limited partnership units are not freely transferable and have no
established secondary market. With an LP, you should assume you
will own it throughout the life of the program. All the others listed
here have active secondary markets and are very liquid.
◉ Why is a fixed annuity not considered to be a security?
A)
The fixed annuity buyer assumes no investment risk.
B)
The portfolio may be indirectly managed.
C)
Although it is an insurance company product, it is not life insurance.
D)
Inflation protection for the purchaser is guaranteed.
Answer: A
With fixed insurance products such as whole life insurance and fixed
annuities, the insurance company assumes the investment risk. This
elimination of investment risk for the purchaser is what
differentiates the product from a security. Note that with fixed
products, even though not a security, the purchaser faces inflation
risk.
, ◉ Benjamin Jackson bought 100 shares of XYZ two years ago at $10
per share. The stock paid a $0.50 dividend each year and he sold the
stock for $11. What percent was his total return?
A)
20%
B)
50%
C)
5%
D)
10%
Answer: A
An investor's total return is made up of any income received, such as
dividends on stock or interest on bonds, plus any gain (or loss) over
the holding period. That makes the formula for total return in this
question: dividends plus capital gains divided by amount invested.
The math looks like this: two years of dividends at $0.50 per year
equals $1. The stock was purchased for $10 and sold for $11
resulting in a gain of $1. Add the $1 of income to the $1 of gains and
then divide the resulting $2 by the cost basis of $10. This results in a
total return of 20% (2/10 = 0.2). Please note that when a question
refers to the amount of a dividend paid on stock, unless specified
otherwise, it is a quarterly payment. This question specifies the
annual amount is $0.50, so do not multiply that times 4 assuming
the dividend is quarterly. If you did that, you probably answered
50%.
