TheorySeries 65
Practice Test
Cover economics, portfolio theory, fiduciary duty, and state law with practice questions mapped to Series 65 exam domains. Build the knowledge base that earns the license
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Series 65 exam — full Q&A walkthrough
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30 free Series 65 questions
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Uniform Investment Adviser Law
During which phase of the business cycle does unemployment typically reach its lowest point and consumer spending peak?
Correct — A. The peak is the high point of a business cycle where economic output, employment, and consumer spending are at their maximum before the economy begins to contract. -
Uniform Investment Adviser Law
Which of the following BEST describes Gross Domestic Product (GDP)?
Correct — C. GDP measures the total market value of all final goods and services produced within a country's geographic borders during a defined period, distinguishing it from GNP which tracks output by a nation's citizens. -
Uniform Investment Adviser Law
A client holds a $1,000 bond paying a 5% annual coupon. If market interest rates rise to 7%, what happens to the bond's market price?
Correct — C. Bond prices and interest rates move inversely; when market rates exceed a bond's coupon rate, the bond must trade at a discount so that its total return equals the prevailing market yield. -
Uniform Investment Adviser Law
On a company's balance sheet, which of the following is classified as a current liability?
Correct — B. Current liabilities are obligations expected to be settled within one year, and accounts payable — amounts owed to suppliers for goods or services already received — are a classic example. -
Uniform Investment Adviser Law
The Federal Reserve raises the federal funds rate. This action is an example of:
Correct — C. Monetary policy is set by the Federal Reserve, and raising the federal funds rate increases borrowing costs to slow spending and reduce inflationary pressure, making it contractionary monetary policy. -
Uniform Investment Adviser Law
An investor wants to know how much she must deposit today to accumulate $50,000 in 10 years, assuming a 6% annual return compounded annually. Which concept BEST describes this calculation?
Correct — D. Discounting a known future lump sum back to today using a required rate of return is the definition of present value (PV) of a lump sum, expressed as PV = FV / (1 + r)^n. -
Uniform Investment Adviser Law
A nation reports that its Consumer Price Index rose from 240 to 252 over one year. What is the approximate inflation rate for that period?
Correct — C. The inflation rate is calculated as (252 - 240) / 240 = 12 / 240 = 0.05, or exactly 5.0%, representing the percentage change in the price level over the period. -
Uniform Investment Adviser Law
Which of the following fiscal policy actions would MOST likely be used to stimulate an economy experiencing a severe recession?
Correct — B. Expansionary fiscal policy — implemented by Congress and the President — involves cutting taxes to boost disposable income and increasing government spending to inject demand into a sluggish economy. -
Uniform Investment Adviser Law
A company's income statement shows net sales of $800,000, cost of goods sold of $480,000, and operating expenses of $160,000. What is the company's operating income?
Correct — B. Operating income equals gross profit minus operating expenses; gross profit is $800,000 - $480,000 = $320,000, and $320,000 - $160,000 = $160,000 in operating income. -
Uniform Investment Adviser Law
An investor purchases an annuity that will pay $5,000 per year for 5 years, with the first payment beginning one year from today. This is BEST described as:
Correct — B. An ordinary annuity (also called an annuity in arrears) is defined as a series of equal payments made at the end of each period, consistent with the first payment occurring one year from today. -
Uniform Investment Adviser Law
Stagflation is characterized by which combination of economic conditions?
Correct — B. Stagflation describes the unusual coexistence of stagnant economic growth (or recession), high unemployment, and persistent inflation, which defies the traditional Phillips Curve trade-off. -
Uniform Investment Adviser Law
During a period of deflation, an investment adviser should be MOST concerned that a client holding long-duration fixed-rate bonds will face which of the following risks?
Correct — A. Deflation raises the real burden of corporate debt, compresses revenues and profit margins, and increases the probability of issuer default, making credit (default) risk the primary concern for corporate bond holders. -
Uniform Investment Adviser Law
A company has total assets of $2,400,000, total liabilities of $1,440,000, and net income of $192,000. What is its return on equity (ROE)?
Correct — A. Shareholders' equity equals total assets minus total liabilities ($2,400,000 - $1,440,000 = $960,000), and ROE = net income / equity = $192,000 / $960,000 = 0.20, or 20.0%. -
Uniform Investment Adviser Law
Which type of risk can be eliminated through diversification across a sufficient number of securities?
Correct — C. Unsystematic (company-specific) risk is diversifiable because individual stock price movements are not perfectly correlated, so combining enough securities causes their unique risks to offset each other, while systematic risk affects the entire market and cannot be diversified away. -
Uniform Investment Adviser Law
Beta measures a security's:
Correct — B. Beta is a measure of systematic (market) risk that quantifies how much a security's return tends to move relative to a one-unit move in the broad market index, with a beta of 1.0 indicating movement in lock-step with the market. -
Uniform Investment Adviser Law
A portfolio lies on the efficient frontier if it offers:
Correct — A. Harry Markowitz defined the efficient frontier as the set of portfolios that deliver the maximum expected return for each level of portfolio risk (standard deviation), or equivalently, the minimum risk for each expected return level. -
Uniform Investment Adviser Law
Standard deviation is best described as a measure of:
Correct — A. Standard deviation quantifies total risk by measuring how widely individual periodic returns are spread around the average (mean) return; a higher standard deviation indicates greater variability and therefore greater total risk. -
Uniform Investment Adviser Law
According to the Capital Asset Pricing Model (CAPM), the expected return of a security equals the risk-free rate PLUS:
Correct — A. CAPM states: Expected Return = Risk-Free Rate + Beta × (Market Return − Risk-Free Rate), where (Market Return − Risk-Free Rate) is the market risk premium, reflecting compensation only for non-diversifiable systematic risk. -
Uniform Investment Adviser Law
An investment has an expected return of 12%, a risk-free rate of 3%, and a standard deviation of 15%. Its Sharpe ratio is closest to:
Correct — D. The Sharpe ratio = (Portfolio Return − Risk-Free Rate) / Standard Deviation = (12% − 3%) / 15% = 9% / 15% = 0.60, measuring the excess return earned per unit of total risk. -
Uniform Investment Adviser Law
If two assets have a correlation coefficient of −1.0, combining them in a portfolio will:
Correct — D. A correlation of −1.0 means the two assets move in perfectly opposite directions; at the correct weighting, their gains and losses exactly offset each other, theoretically reducing portfolio standard deviation to zero. -
Uniform Investment Adviser Law
A stock has a beta of 0.6. If the broad market rises by 10%, the stock is expected to:
Correct — D. Beta measures the expected change in a security's return for each 1% change in the market; a beta of 0.6 means the stock is expected to move 0.6 × 10% = 6% in the same direction as the market. -
Uniform Investment Adviser Law
Alpha in portfolio management represents:
Correct — D. Alpha (Jensen's alpha) is the return a portfolio generates above or below what CAPM predicts based on its beta; a positive alpha indicates the manager added value beyond the compensation for systematic risk taken. -
Uniform Investment Adviser Law
Which of the following is the BEST example of systematic risk?
Correct — D. Systematic (market) risk arises from macroeconomic forces that affect all securities, such as a central bank interest rate change; the other options describe company- or industry-specific events that represent unsystematic risk and can be diversified away. -
Uniform Investment Adviser Law
Portfolio A has a Sharpe ratio of 1.2 and Portfolio B has a Sharpe ratio of 0.9. Both portfolios have the same expected return. Which conclusion is MOST accurate?
Correct — D. The Sharpe ratio measures excess return (above the risk-free rate) per unit of standard deviation; if two portfolios have the same expected return, the one with the higher Sharpe ratio achieves that return with less total risk, making it more risk-efficient. -
Uniform Investment Adviser Law
An adviser is comparing two portfolios with identical Sharpe ratios but different betas. Which additional measure would BEST distinguish their risk-adjusted performance relative to the market benchmark?
Correct — D. The Treynor ratio divides excess return by beta (systematic risk only) rather than standard deviation; when Sharpe ratios are equal but betas differ, the Treynor ratio isolates performance per unit of market-related risk and distinguishes which portfolio compensates better for systematic risk taken. -
Uniform Investment Adviser Law
A well-diversified portfolio has a standard deviation of 18% and a correlation of 0.90 with the market index, which itself has a standard deviation of 20%. The portfolio's beta is approximately:
Correct — A. Beta = (Correlation × Portfolio Standard Deviation) / Market Standard Deviation = (0.90 × 18%) / 20% = 16.2% / 20% = 0.81; this formula links the three statistics and is a common CAPM calculation tested on the Series 65. -
Uniform Investment Adviser Law
According to modern portfolio theory, moving a portfolio from the interior of the feasible set to the efficient frontier will always:
Correct — C. By definition, an interior portfolio is dominated; shifting it to the efficient frontier means achieving a higher expected return at the same risk, lower risk at the same expected return, or an improvement in both dimensions — it does not guarantee any specific Sharpe ratio value. -
Uniform Investment Adviser Law
Which of the following best describes a closed-end fund?
Correct — A. A closed-end fund issues a fixed number of shares through an IPO and those shares trade on a stock exchange at market prices that may differ from NAV, unlike open-end mutual funds which continuously issue and redeem shares at NAV. -
Uniform Investment Adviser Law
An investor purchases a U.S. Treasury bill at a discount. Which of the following correctly describes the return the investor receives?
Correct — C. Treasury bills are zero-coupon money market instruments; the investor's return is the discount from face value — the difference between the price paid and the par value received at maturity. -
Uniform Investment Adviser Law
Which characteristic distinguishes a variable annuity from a fixed annuity?
Correct — D. In a variable annuity the premium is allocated to separate-account subaccounts (similar to mutual funds), so the accumulation value rises and falls with market performance, meaning the investor bears the investment risk.
Series 65 sample questions
Tap any question below to reveal the answer and a plain-English explanation.
Uniform Investment Adviser Law An exchange-traded fund (ETF) that tracks the S&P 500 is MOST similar to which of the following?
A. An open-end index mutual fund investing in the same S&P 500 components ✓
B. A closed-end fund investing in emerging-market equities
C. A unit investment trust holding a fixed portfolio of municipal bonds
D. A real estate investment trust focused on commercial properties
Correct — A. Both an S&P 500 ETF and an open-end S&P 500 index fund seek to replicate the same index, differ mainly in that ETFs trade intraday on an exchange while mutual funds are priced once daily at NAV.
Real Exam Practice All of the following are considered securities EXCEPT:
A. Limited partnerships
B. Commodities ✓
C. Foreign currency options
D. US Government bonds
Correct — B. That's the right answer.
Uniform Investment Adviser Law A real estate investment trust (REIT) must distribute at least what percentage of its taxable income to shareholders each year to maintain its REIT status and avoid corporate income tax at the entity level?
A. 75%
B. 90% ✓
C. 100%
D. 51%
Correct — B. Under the Internal Revenue Code, a REIT must distribute at least 90% of its taxable income to shareholders annually; meeting this requirement allows the REIT to deduct those dividends and generally avoid corporate-level income tax.
Real Exam Practice Which of the following are true regarding Real Estate Investment Trusts? I. They pass through income and losses generated by the properties owned. II. The securities offered by the trust are not redeemable. III. They must invest all of their money into real estate related projects. IV. Their securities offer less liquidity risk than real estate.
A. II only
B. II and IV ✓
C. I, III, and IV
D. I, II, III, and IV
Correct — B. That's the right answer.
Uniform Investment Adviser Law Which of the following most accurately describes the net asset value (NAV) of a mutual fund share?
A. The total market value of the fund's assets minus its liabilities, divided by the number of shares outstanding ✓
B. The fund's total return over the prior 12 months expressed on a per-share basis
C. The market price at which the fund's shares trade on a national exchange throughout the trading day
D. The offering price including any applicable front-end sales load charged to investors
Correct — A. NAV is calculated by subtracting the fund's total liabilities from total assets and dividing by shares outstanding; it is the per-share book value, not the offering price, which may include a sales load.
Real Exam Practice An adviser recommends mutual funds to a capital-preservation-focused client but the client worries about safety. The adviser claims all securities are regulated by the SEC and state governments. Which is true?
A. Misleading—mutual funds don't require state registration
B. Misleading—SEC and states don't regulate investment safety ✓
C. Not misleading—SEC and states regulate securities trading
D. Not misleading—mutual funds suit capital preservation
Correct — B. That's the right answer.
Uniform Investment Adviser Law A call option gives its holder the right, but not the obligation, to do which of the following?
A. Receive periodic interest payments tied to changes in the underlying asset's price
B. Sell the underlying security at the strike price before or on the expiration date
C. Buy the underlying security at the strike price before or on the expiration date ✓
D. Deliver the underlying security to the option writer at any time during the contract period
Correct — C. A call option conveys to the buyer the right — not the obligation — to purchase the underlying security at the specified strike price on or before expiration; this is the fundamental definition distinguishing calls from puts.
Real Exam Practice All of the following are examples of fundamental factors regarding a company EXCEPT: I. earnings trends, II. short interest, III. put/call ratio, IV. management of the company.
A. I and III
B. I and IV
C. II and III ✓
D. II and IV
Correct — C. That's the right answer.
About the Series 65 test
Study for the Series 65 (Uniform Investment Adviser Law) exam with original practice questions written from the publicly available NASAA Series 65 test specifications. Every question has a clear explanation.
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