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SERIES 66 Practice Tests & Exams 



CertMagic.com is a place where you can find various types of SERIES 66 exam certifications preparation material. CertMagic’s full range of study material for the SERIES 66 exam helps you to be prepared for the SERIES 66 exam fully and enter the exam centre with full confidence.We provide you easy, simple and updated study material. After preparing from the SERIES 66 exam material prepared by us we guarantee you that you will be a certified professional. We guarantee that with CertMagic SERIES 66 study material, you will pass the Certification exam.

 

 
 
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Slide 1: Series 66 Series 66 Exam: Series 66 Demo Edition CERT MAGIC 1 http://www.certmagic.com
Slide 2: Series 66 Section 1: Sec One (1 to 20) Details: Investment Analysis, Recommendations, and Strategies QUESTION: 1 Tiffany's brother, Jamal, is a new investor but believes that the markets are basically efficient and that he doesn't have the knack for or interest in predicting trends. He also believes in saving money on transaction costs and taxes. Jamal's investment style is best described by which of the following: A. B. C. D. Indexing Tactical asset allocation Buy and hold Diversification Answer: C Explanation: A buy-and-hold strategy describes a passive investment approach. This approach assumes that markets are efficient and that it is impossible to time the purchase or sale of securities or to manage the balance of assets in order to take advantage of market movements. Since this is a passive strategy, there are reduced transactions costs and also reduced tax consequences. The downside to a buy-and- hold approach is that over time, the risk and reward of the asset allocation will change and may not be in alignment with the client's original risk tolerance and objectives QUESTION: 2 In 2004, inflation has risen to 4%. The Seymour Jones family has owned an 8% callable corporate bond for seven years. Calculate the 2004 real interest rate on this bond. A. B. C. D. .04% 12% 98% 4% Answer: D Explanation: The formula for inflation-adjusted return factors the eroding effect of inflation on an 2 http://www.certmagic.com
Slide 3: Series 66 investment's annual yield (8%-4%= 4%). It makes no difference that the bond is callable or that the family has owned the bond for seven years. QUESTION: 3 Samantha Peterson felt that she had made a great investment in Zip Wow, a growing company in Kalamazoo. She had purchased 10 of Zip Wow''s 11% bonds at 103 and hoped to make a profit before the bonds were called. In 2003, inflation rose from 2% to 3% and Zip Wow''s stock dropped to $12 per share. Calculate the inflation- adjusted return on one of Samantha''s bonds for 2003. A. B. C. D. $11.33 8% 10% $113.30 Answer: B Explanation: Inflation-adjusted return shows an investment's true yield by factoring out the eroding effect of inflation from an annual interest rate. It is calculated by a simple formula: Annual interest rate (yield) plus or minus the current inflation rate. Here: 11% - 3% inflation = 8% inflation-adjusted return on the bond QUESTION: 4 Which one of the following client types may NOT be taxed by the IRS based on the personal income tax brackets of the individuals in the group? A. B. C. D. S Corporation Limited Liability Company C Corporation Partnership Answer: C Explanation: C corporations are required to pay taxes on their incomes as a corporate entities; the tax amount is NOT based on the personal tax rates of the individuals who work for the corporation or its shareholders (owners). However, shareholders are required to pay taxes 3 http://www.certmagic.com
Slide 4: Series 66 on profits (dividends) at their individual income tax rate. C corporations face a double taxation and this is a key disadvantage to this type of business structure. An S corporation, if certain requirements are met, can choose to be taxed like a partnership or limited liability company. Within these entities, the individuals involved will be taxed at their personal income tax rates rather than on the profits of the entity as a whole QUESTION: 5 As an advisor makes recommendations for the investments within a trust, who is the most important to consider: A. B. C. D. The grantor The executor The beneficiary The trustee Answer: C Explanation: The beneficiary's financial objectives should be the primary focus for investments within the trust. The beneficiary's objectives may be quite different from that of the trustee and the investment advisor must develop an investment profile that is suitable QUESTION: 6 The executor of an estate is typically identified within which document? A. B. C. D. Life insurance policy The trust certificate The will The discretionary order Answer: C Explanation: An estate's executor is typically identified within the will of the deceased. If no executor has been selected, the state will appoint someone to manage the assets of the estate; this person is known as the administrator 4 http://www.certmagic.com
Slide 5: Series 66 QUESTION: 7 A self-employed individual is an example of which of the following? A. B. C. D. E. Sole Proprietor Limited Liability Company Subchapter S General Partnership Executor Answer: A Explanation: Self-employed individuals work for themselves and are considered sole proprietors. A sole proprietor maintains managerial control of his or her business, is entitled to all the profits from the business and is personally responsible for all company debt QUESTION: 8 Ronnie Ann is a 48-year-old marketing executive. She consults Amy, her investment advisor about the possibility of retiring at age 55, based on her current investments and an anticipated inheritance in the next year. Since Ronnie Ann''s time horizon to retirement is short (seven years), she tells Amy that she cannot afford to invest new money in speculative, high-risk investments. Which of the following would represent an unsuitable investment for Ronnie Ann''s time horizon? A. B. C. D. Blue Chip Stocks ''AAA'' Bonds Hedge Fund Money Market CD Answer: C Explanation: Hedge funds are high-risk investment vehicles that can return a high pay-off; however, this type of investment is very risky and Ronnie Ann specifically expressed concern that her time horizon would not allow for risky new investments. In seven years, Ronnie Ann's money would be very safe in a money market CD, high grade corporate bonds (AAA) or a very closely managed portfolio of blue chip stocks 5 http://www.certmagic.com
Slide 6: Series 66 QUESTION: 9 The general investing public is under the opinion that today''s new tech stock is going to take off and that its high price/earnings ratio is insignificant. Mary invests with the philosophy that the new tech stock is highly over-valued and that when the stock price is lower and the company begins to show earnings, it may represent a good buy. This is known as: A. B. C. D. Efficient frontier Contrarian investing Tactical asset allocation Modern Portfolio Theory Answer: B Explanation: Mary invests with a contrarian investment strategy, a style that does not follow public opinion and market trends. Contrarian style investing generally places value on solid companies with low P/E ratios QUESTION: 10 Stanley Pawlowski is the administrator of his company pension 401(k) plan. He''s just hired Dennis Blaze as the investment advisor who will also share in fiduciary responsibility. Under the Employee Retirement Income Security Act (ERISA), which one of the following documents must Stanley and Dennis keep on file? A. B. C. D. The plan''s performance reports An investment policy statement An official statement A contract of qualified plan participants Answer: B Explanation: An investment policy statement describes the plan's investment strategy as well as longterm plan goals, investment philosophy, risk tolerance, time horizons, rate of return expectations and preferred asset classes. An investment advisor is bound by law and fiduciary responsibility to follow this blueprint of the investment plan 6 http://www.certmagic.com
Slide 7: Series 66 QUESTION: 11 Which of the following would endure the most negative impact based on rising inflation: A. B. C. D. Gold Real Estate ''AAA'' Bonds Blue Chip Stocks Answer: C Explanation: Bonds show a far greater degree of vulnerability during inflationary times than do the other choices, which, historically, have fared well when the cost of goods and services has increased. Bondholders incur rising interest rates, which drive down the value of their investments. Furthermore, the interest paid on bonds also loses purchasing power during times of inflation QUESTION: 12 The formula Pn=P0(1+r)n is used to calculate: A. B. C. D. Value of principal Time value of money Future value of money Internal rate of return Answer: C Explanation: The formula for future value of money projects what an investment will be worth at some given point in the future. The original principal amount(P0), interest rate (r) and the number of years for the interest to compound (Pn) are all important factors in the calculation QUESTION: 13 Which of the following investment vehicles would be best suited for someone with an aggressive risk tolerance? A. Small company fund 7 http://www.certmagic.com
Slide 8: Series 66 B. T-Bills C. Money market CD''s D. ''AAA'' corporate bonds Answer: A Explanation: An investor with an aggressive risk tolerance is comfortable with the rise and fall of markets and is willing to exchange potentially higher profits with a higher degree of risk. Small company funds, known as small-cap funds, are typically considered riskier because of their size and may often be start-ups QUESTION: 14 Sally''s long-time partner, Gene, has just passed away and Sally seeks advice from her trusted financial advisor, Lyn. Which of the following is NOT true regarding estates? A. Executors are fiduciaries B. Estates are meant to be short term C. Estates include the total assets and liabilities of the deceased, along with all types of property, real and personal, tangible and intangible D. Without a will, the courts appoint an executor to distribute assets, pay taxes and safeguard the property for the benefit of the estate''s heirs. Answer: D Explanation: Without a will, the courts appoint an administrator to pay taxes, distribute assets and oversee the property. If this person has been named in a will, they are known as the executor. All of the other choices are correct with regard to estates QUESTION: 15 Jonathan Marks is a conservative investor and does not appreciate a great deal of risk. He likes socially-conscious companies that value diversity, health and human life. His financial advisor, Allan Reynolds, captures all of this information while conducting an interview to determine a suitable investment strategy for Jonathan''s IRA portfolio. Allan returns in one week with choices for Jonathan to consider. Allan may have missed his mark with at least one of his recommendations. Which of these would be an inappropriate investment, considering Jonathan''s personal investment philosophy and risk tolerance? 8 http://www.certmagic.com
Slide 9: Series 66 A. B. C. D. A hedge fund that invests in multicultural businesses An equities fund of organic food manufacturers A corporate bond fund that intentionally contains no tobacco companies A mutual fund consisting of socially conscious companies Answer: A Explanation: Since Jonathan Marks has a low tolerance for risk, he would definitely want to avoid investing in a hedge fund, no matter what type of businesses the fund invests in. Hedge funds come with a very high degree of risk in exchange for a potentially high return. All the other options shown would respect Mr. Marks' philosophical views and would also be appropriate for his retirement plan QUESTION: 16 The measure of return for the yield to maturity of a bond is: A. B. C. D. Par x $1,000 Total return The internal rate of return Call risk Answer: C Explanation: When calculating an investment's future value we use the formula Pn=Po(1+r); to calculate present value, or the investment amount needed today to reach a future financial goal, we use the formula Po=Pn/(1+r)n. It is also helpful, if you have the numbers for Pn or Po,to find "r", the rate of interest on an investment. This calculation is most easily solved by a manual trial-and-error method using an electronic calculator. The resulting figure is known as the internal rate of return (IRR). A trial-and-error manual calculation is now easily solved by most electronic calculators QUESTION: 17 Jane and Fabbio Salvatore have just discovered that a Fabulous Florence municipal bond will be offered to support a bridge development in Fabbio''s hometown in Florence, OH. They want to purchase the bond at $1,000, but end up buying the 10% bond at $1,020. One year later, the Salvatores want to sell and earn a profit when the market value is at $1,000. 9 http://www.certmagic.com
Slide 10: Series 66 Calculate the total return of the Fabulous Florence bond. A. B. C. D. 9.98% 12% .0196% 2% Answer: A Explanation: The test will try to confuse you by adding extra details to the questions. It doesn't matter that the Salvatores wanted to buy at $1,000 when, in fact, they bought at $1,020. Furthermore, one year later when the market is at $1,000, their bond has actually depreciated. Only 9.98% could be the answer. The total return will reflect the interest earned (yield) plus or minus any appreciation or depreciation (growth). While the bond earns 10% interest, it has lost nearly 1% of its value and delivers a total return of 9.98%. ($1,020-$1,000 = $20)/$1,020 = .0196%. (10% + (-.0196%) = 9.98% QUESTION: 18 Lucky Lavallee has just opened Casino Lavallee, a small operation in Vermont with 10 slot machines, five blackjack tables and a separate room for poker games. His mother, Helene, has offered to finance part of the business in return for a share of the profits, but she is concerned about risk. Which type of business structure would be the most suitable for Casino Lavallee? A. B. C. D. Family Limited Partnership C Corporation Limited Liability Company Estate Answer: C Explanation: In a limited liability company (LLC), the owners are not personally liable for a company's debts. LLCs are advantageous from a tax standpoint because the owners are taxed at their personal income tax rate on their share of the profits only. Additionally, LLCs are easy to set up and have more flexible management structures than a corporation. Under a C corporation structure, Helene would not be personally responsible for the company's liabilities. However, the size of this casino does not necessarily warrant the added expense 10 http://www.certmagic.com
Slide 11: Series 66 and complication of incorporating. A family limited partnership is generally formed, with a legitimate business purpose, to minimize estate and gift taxes. QUESTION: 19 At year-end 2004, the Federal Reserve reported moderate economic growth of 3%, a reduction of the unemployment rate to 3% and an inflation rate that was "well contained at 3%". Under these circumstances, the real interest rate of the 10% corporate bond you own is 7% this year. Which of the following economic factors would factor in to the real interest rate of your bond? A. B. C. D. Economic growth at 3% The Fed Funds rate Unemployment at 3% Inflation at 3% Answer: D Explanation: The real interest rate, also referred to as the inflation-adjusted return, factors the eroding effect of inflation from an investment's return. The formula is: Yield plus or minus inflation rate = real interest rate/inflation-adjusted return. The Fed Funds rate is the market rate that banks charge each other on overnight loans of reserves QUESTION: 20 Which of the following represents the best investment for someone whose objective is growth? A. B. C. D. Common stocks Money market funds Corporate bonds Long-term CDs Answer: A Explanation: Common stock would be a suitable recommendation for someone whose investment objective is growth. The other options represent investment vehicles that carry less risk and offer preservation of capital. 11 http://www.certmagic.com

   
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