Series 65 Practice Questions 9 || with 100% Error-free Answers.
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Module
Series 65
Institution
Series 65
What's the formula for calculating working capital? correct answers 1.) Total Debt/Total Equity
2.) Assets - Liabilities
3.) Current Assets - Current Liabilities
4.) Current Assets/Current Liabilities
Explanation: A company calculates its working capital by taking Current Assets and s...
Series 65 Practice Questions 9 || with 100% Error-free
Answers.
What's the formula for calculating working capital? correct answers 1.) Total Debt/Total Equity
2.) Assets - Liabilities
3.) Current Assets - Current Liabilities
4.) Current Assets/Current Liabilities
Explanation: A company calculates its working capital by taking Current Assets and subtracting
Current Liabilities. Working capital measures liquidity, which is the short-term financial health
of a company.
In an effort to generate new business, an investment adviser wants to publish a list of its past
recommendations. According to the USA, which of the following best describes the adviser's
obligations? correct answers 1.) The list must include all recommendations that it made within
the past three months
2.) The list must include all recommendations that it made to retail accounts during the prior six
months
3.) The list must include all recommendations that it made over a minimum one-year time frame
4.) The adviser may publish a list of its most favorable recommendations if it is based on an
investment period of at least one year and the list is maintained for a minimum of three years
Explanation: An investment adviser may include a list of its previous investment
recommendations in advertising and sales materials as long as the list includes all of the adviser's
recommendations during the relevant period (which must be at least one year).
When is a broker-dealer required to deliver a prospectus? correct answers 1.) At the time of sale
2.) No later than 24 hours after the sale
3.) By settlement date
4.) Prior to the sale
Explanation: Broker-dealers are required to deliver prospectuses to purchasers of a new issue
along with the confirmation, which is due by the settlement date.
,What form is required when registering as a broker-dealer? correct answers 1.) Form U4
2.) Form 3
3.) Form BD
4.) Form U5
Explanation: Form BD is the Uniform Application for Broker-Dealer Registration, which is filed
with the SEC, SROs that have jurisdiction, and the appropriate states, through the Central
Registration Depository (CRD) operated by FINRA.
Your client would like to invest her traditional IRA contribution for long-term growth, but in
such a way as to maximize diversification and minimize costs. Which of the following
investments would be the best recommendation for her? correct answers 1.) Invest in a mutual
fund that mirrors the S&P 500 Index
2.) Invest in a variable annuity that has a subaccount that mirrors the S&P 500 Index
3.) Buy a stock from each of 10 different sectors
4.) Invest in a variable life insurance policy that has a subaccount that mirrors the S&P 500 Index
Explanation: A major advantage of investing in a variable annuity is the ability to participate in
the earnings that the market offers while deferring tax on those earnings. Since an IRA is tax-
deferred investment, the client could achieve this by investing the IRA contributions directly into
a mutual fund. This would result in lower fees for the client, since variable annuities have a
number of additional fees (e.g., mortality and expense risk fees) on top of the typical mutual fund
expenses for each subaccount. Buying stock from 10 different sectors, the client would not have
as much diversification as a portfolio that models the S&P 500 Index (a broad market index).
The IRS does not permit IRA contributions to be used to purchase life insurance. Also, a life
insurance policy should never be recommended to a person who does not need the insurance,
since its cost will be subtracted from the cash value in addition to the usual mutual fund expenses
for each subaccount.
An IA has chosen a new money manager to handle one of its client's assets. This manager was
selected because of its expertise. Two years later, the money manager changes its approach and
begins to make very speculative trades that are unsuitable for the client based on his risk profile.
The client loses half of his investment and writes a complaint letter. In this situation, what should
the adviser have done? correct answers 1.) Required the money manager to obtain the adviser's
consent to change its management style
2.) Monitored the money manager's activities and detected that the trading was unsuitable
,3.) Reminded the client that it is not managing his money and is not liable
4.) Informed the client that any complaints should be forwarded to the money manager
Explanation: When an investment adviser directs its clients' assets to another adviser (sometimes
referred to as a subadviser), it is the responsibility of the adviser to monitor these accounts to
ensure that the subadviser is acting in the clients' best interests.
What is the motivation behind setting up an UTMA account? correct answers 1.) To fund higher
education
2.) To provide gifts to the child/owner
3.) For tax savings
4.) To reduce the estate of the donor
Explanation: Due to the popularity of 529 plans, the effectiveness of custodian accounts has
diminished. Any of the earnings that are generated in an UTMA are subject to taxation. The
primary purpose for establishing a UTMA is to provide gifts of cash and/or securities for a
child's future benefit.
What's a basic assumption of Modern Portfolio Theory? correct answers 1.) The market will
increase over the long-run
2.) The economy's growth rate will eventually decrease
3.) Investors will minimize risk when possible
4.) Investors should buy safer investments as they get older
Explanation: Modern Portfolio Theory (MPT) is based on the following two assumptions: 1)
Investors will try to maximize their returns, and 2) Investors generally seek to assume as little
risk as possible. Although many investors will take less risk as they age, MPT doesn't
specifically mention an investor's age. Also, MPT doesn't make any assumptions about the
market or the economy.
A young, married couple are ready to start investing and their main objective is long-term
growth. Of the following choices, the most appropriate mutual fund for the couple is one with a
portfolio that contains: correct answers 1.) 40% stocks and 60% bonds
Explanation: The best choice for the young couple is a diversified portfolio that primarily
consists of stocks along with a smaller percentage of bonds. When determining an appropriate
asset allocation, a generally guideline is to start with the number 100 and subtract the investor's
age to determine the percentage that may be devoted to equities. Although the question does not
specify the ages of the couple, since they are young and want long-term growth, it should be
assumed that a large percentage of equities is appropriate. Although Choice (b) is 100% equities,
half of the portfolio is devoted to foreign stocks and is probably too risky.
Regarding a company's financial statements, total assets are equal to: correct answers 1.) Total
Liabilities + Stockholders' Equity
2.) Total Liabilities - Stockholders' Equity
3.) Total Liabilities + Stockholders' Equity - Depreciation
4.) Stockholders' Equity + Goodwill
Explanation: The balance sheet formula is Total Assets = Total Liabilities + Stockholders'
Equity. Total Assets is, therefore, equal to Total Liabilities + Stockholders' Equity.
Which of the following statements about discounted cash flow (DCF) analysis is TRUE? correct
answers 1.) It is based on the theory that markets are efficient and there is no way to predictably
outperform the market as a whole.
2.) It uses cash flows that an investor has already received and reinvested.
3.) If the net present value of an investment is less than zero, it represents a good investment
opportunity.
4.) If the net present value of an investment is greater than zero, it represents a good investment
opportunity.
Explanation: Discounted cash flow analysis uses an estimate of future cash flows (e.g., dividends
and interest payments) to estimate the current value of an investment (i.e., the present value of
the investment). If the present value of an investment is calculated and it is compared it to the
investment's current market price, the net present value (NPV) is determined. A positive NPV
means that the investment can be purchased for less than its present value. In other words, the
DCF analysis indicates that with positive NPV the investment will pay out more in the future
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